DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

EDGEWATER TECHNOLOGY, INC.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO    LOGO

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

 

 

September 28, 2018

To Stockholders of Edgewater Technology, Inc.:

You are cordially invited to attend a special meeting of the stockholders of Edgewater Technology, Inc. (“Edgewater”) to be held on October 29, 2018 at 10:00 a.m. Eastern Time, at the offices of McDonald Hopkins LLC, 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114.

As previously announced, on March 15, 2018, Edgewater entered into an Arrangement Agreement (the “arrangement agreement”), among Alithya Group Inc., a Québec private corporation (“Alithya”), Alithya Group inc. (f/k/a 9374-8572 Québec Inc.), a newly-formed Québec corporation (“New Alithya”), 9374-8572 Delaware Inc.), a newly-formed wholly-owned Delaware subsidiary of New Alithya (“U.S. Merger Sub”), and Edgewater. Under the terms of the arrangement agreement, as amended on September 10, 2018 and more particularly described in the accompanying prospectus/proxy statement, (a) New Alithya will acquire Alithya pursuant to a plan of arrangement under the laws of Québec, Canada (the “arrangement”) and (b) U.S. Merger Sub will merge with and into Edgewater (the “merger”), with Edgewater as the surviving corporation in the merger (together, the “transactions”). As a result of the transactions, both Edgewater and Alithya will become wholly-owned subsidiaries of New Alithya. Upon consummation of the transactions, Alithya will be renamed “Alithya Canada inc.” A complete copy of the arrangement agreement, as amended, is attached as Annex A to the accompanying prospectus/proxy statement.

As consideration for the merger, Edgewater stockholders will receive 1.3118 newly issued Class A subordinate voting shares, no par value (“New Alithya Subordinate Voting Shares”), of New Alithya in exchange for each share of common stock, U.S.$0.01 par value (“Edgewater Common Stock”), of Edgewater held by such stockholders. However, as described in more detail in the accompanying prospectus/proxy statement, the number of New Alithya Subordinate Voting Shares to be received by Edgewater stockholders is subject to potential adjustment if the volume-weighted average trading price of the Edgewater Common Stock on the NASDAQ Global Market (“NASDAQ”) during the 10 consecutive trading days immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25.

In addition to the right of Edgewater stockholders to receive New Alithya Subordinate Voting Shares in the transactions, Edgewater will declare to Edgewater stockholders and option holders of record immediately prior to the anticipated closing date of the transactions a special dividend equal to U.S.$20.5 million, provided that (i) the total amount of the dividend will proportionately increase or decrease to the extent, if any, that Edgewater’s “Net Cash” (as defined in the arrangement agreement) is then greater or less than U.S.$8.5 million, as the case may be, and (ii) the dividend will be payable either in cash (for Edgewater’s stockholders) or reflected through adjustment (for holders of Edgewater’s options) to the exercise price of such options, as the case may be. Payment of the special dividend will be contingent upon the closing of the transactions and will be declared at least 10 days prior to, and be paid within 10 days following, such closing. The application of the adjustment formula described above will likely result in a special dividend amount that is less than U.S.$20.5 million. Based on Edgewater’s currently expected “Net Cash” as of the closing of the transactions, the total amount of the special dividend would have been approximately U.S.$16.0 million, or approximately U.S.$1.07 for each share of Edgewater Common Stock then outstanding (applying the full dilution, in-the-money options treatment to the current basic shares outstanding), if the closing had occurred immediately following September 27, 2018. However, the actual amount of the special dividend may be either higher or lower based on Edgewater’s business, financial condition and liquidity between September 27, 2018 and the dividend declaration date.

As consideration for the arrangement, each common share, no par value (“Alithya Common Shares”), of Alithya and each multiple voting common share, no par value (“Alithya Multiple Voting Common Shares” and, together with Alithya Common Shares, “Alithya Shares”), of Alithya then issued and outstanding will be cancelled and automatically converted into the right to receive one newly issued New Alithya Subordinate Voting Share and one newly issued Class B multiple voting share, no par value (“New Alithya Multiple Voting Shares” and, together with New Alithya Subordinate Voting Shares, “New Alithya Shares”), of New Alithya, respectively.

Prior to or contemporaneously with the closing of the transactions, Alithya intends to raise up to $50.0 million (plus up to an additional 15% of the offering amount as the underwriters’ option to purchase additional securities) for general corporate purposes, growth opportunities and repayment of the outstanding amount under Edgewater’s existing revolving credit facility in connection with the payment of the Edgewater special dividend discussed above. The offering will be made through a private placement of subscription receipts that will convert into New Alithya Subordinate Voting Shares upon closing of the transactions.

Based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement


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described above), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 42% and 58% of the total number of outstanding New Alithya Shares on a fully-diluted basis, respectively. However, because New Alithya Multiple Voting Shares will be issued only to those Alithya shareholders which now hold Alithya Multiple Voting Common Shares, based on the number of New Alithya Shares to be issued upon consummation of the transactions, the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 18% and 82% of the total voting power of New Alithya Shares, respectively. It is a mutual condition to the effectiveness of the transactions that the New Alithya Subordinate Voting Shares be approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the Toronto Stock Exchange (the “TSX”) (subject only to customary closing conditions). New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX.

Edgewater is soliciting proxies for use at a special meeting of its stockholders to consider and vote upon (i) a proposal to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger), which is referred to as Proposal 1; (ii) a proposal to approve, on a non-binding advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger, which is referred to as Proposal 2; and (iii) a proposal to approve any motion to adjourn the special meeting, or any adjournment thereof, to another time or place, if necessary or appropriate to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger), which is referred to as Proposal 3. Approval of Proposals 2 and 3 is not a condition to the completion of the merger or the arrangement. We urge all Edgewater stockholders to read the accompanying prospectus/proxy statement, including the annexes and the documents incorporated by reference into the accompanying prospectus/proxy statement, carefully and in their entirety. In particular, we urge you to read carefully Risk Factors beginning on page 29 of the accompanying prospectus/proxy statement.

Your proxy is being solicited by the Edgewater board of directors. After careful consideration, the Edgewater board of directors has unanimously approved the arrangement agreement, and determined that the terms of the transactions contemplated thereby (including the merger) will further the strategies and goals of Edgewater. The Edgewater board of directors recommends unanimously that you vote “FOR” the proposal to adopt the arrangement agreement and the transactions contemplated thereby (including the merger), and “FOR” the other proposals described in the accompanying prospectus/proxy statement. In considering the recommendation of the Edgewater board of directors, you should be aware that certain executive officers and directors of Edgewater will have interests in the transactions that may be different from, or in addition to, the interests of Edgewater’s stockholders generally. See “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80 of the accompanying prospectus/proxy statement.

Your vote is very important. Whether or not you expect to attend the special meeting, please vote as soon as possible by following the instructions in the accompanying prospectus/proxy statement to make sure your shares are represented at the special meeting. In this regard, your failure to vote your shares at the special meeting (or to instruct your broker on how to vote your shares at the special meeting) will have the same effect as a vote “AGAINST” the proposal to adopt the arrangement agreement and the transactions contemplated thereby (including the merger).

On behalf of the Edgewater board of directors, thank you for your consideration and continued support.

Very truly yours,

 

LOGO

Jeffrey Rutherford

Chairman, Interim President and Interim Chief Executive Officer

Edgewater Technology, Inc.

None of the Securities and Exchange Commission, any state securities commission or any Canadian securities regulatory authority has expressed an opinion about, or approved or disapproved of the securities to be issued in connection with the transactions or determined if the accompanying prospectus/proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying prospectus/proxy statement is dated September 28, 2018, and is first being mailed to stockholders of Edgewater on or about September 28, 2018.


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ADDITIONAL INFORMATION

The accompanying prospectus/proxy statement incorporates by reference important business and financial information about Edgewater from documents that are not included in or delivered with the prospectus/proxy statement. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into the prospectus/proxy statement by requesting them in writing or by telephone from Edgewater at the following address and telephone number:

Edgewater Technology, Inc.

200 Harvard Mill Square, Suite 210

(prior to October 1, 2018) or Suite 320

(beginning October 1, 2018)

Wakefield, MA 01880

(781) 246-3343

Email: ir@edgewater.com

Attention: Investor Relations

You may also read and copy any document that Edgewater files at the Securities and Exchange Commission’s (“SEC”) Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference room. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including Edgewater. The SEC’s Internet site can be found at http://www.sec.gov.

In addition, if you have questions about the transactions or the special meeting, or if you need to obtain copies of the accompanying prospectus/proxy statement, proxy card or other documents incorporated by reference into the prospectus/proxy statement (at no charge), you may contact Edgewater’s proxy solicitor:

InvestorCom

John Glenn Grau

Toll Free: (877) 972-0090

Direct: (203) 295-7841

Main: (203) 972-9300 ext. 110

If you would like to request documents, please do so by October 22, 2018, in order to receive them before the special meeting. For a more detailed description of the information incorporated by reference into the accompanying prospectus/proxy statement and how you may obtain it, see “Where You Can Find More Information” beginning on page 236 of the accompanying prospectus/proxy statement.


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LOGO

EDGEWATER TECHNOLOGY, INC.

NOTICE OF SPECIAL MEETING OF EDGEWATER STOCKHOLDERS

To be held on October 29, 2018

 

Time:    10:00 a.m. Eastern Time
Date:    October 29, 2018
Place:    the offices of McDonald Hopkins LLC, 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114
Purpose:   

(1) To approve and adopt the Arrangement Agreement, as amended (the “arrangement agreement”), among Alithya Group Inc., a Québec private corporation (“Alithya”), Alithya Group inc. (f/k/a 9374-8572 Québec Inc.), a newly-formed Québec corporation (“New Alithya”), 9374-8572 Delaware Inc., a newly-formed wholly-owned Delaware subsidiary of New Alithya (“U.S. Merger Sub”), and Edgewater Technology, Inc. (“Edgewater”). Under the terms of the arrangement agreement, (i) New Alithya will acquire Alithya pursuant to a plan of arrangement under the laws of Québec, Canada (the “arrangement”), and (ii) U.S. Merger Sub will merge with and into Edgewater (the “merger”), with Edgewater as the surviving corporation (together, the “transactions”). As a result of the transactions, both Edgewater and Alithya will become wholly-owned subsidiaries of New Alithya.

 

(2) To approve, on a non-binding advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger.

 

(3) To approve the adjournment of the special meeting, if necessary or appropriate to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger).

 

Approval of Proposals 2 and 3 is not a condition to the completion of the arrangement or the merger.

 

The accompanying prospectus/proxy statement describes the purpose and business of the special meeting, contains a detailed description of the arrangement agreement and the transactions contemplated thereby (including the merger), and includes a copy of the arrangement agreement as Annex A. Please read these documents carefully before deciding how to vote.

Record Date:    The record date for the special meeting has been fixed by the Edgewater board of directors as the close of business on September 28, 2018. Only Edgewater stockholders of record at that time are entitled to vote at the special meeting.

The accompanying prospectus/proxy statement contains more information about the transactions contemplated thereby (including the merger) and the other proposals. We urge all Edgewater stockholders to read the prospectus/proxy statement, including the annexes and the documents incorporated by reference into the prospectus/proxy statement, carefully and in their entirety. In particular, we urge you to read carefully “Risk Factors” beginning on page 29 of the prospectus/proxy statement.

The Edgewater board of directors recommends unanimously that Edgewater stockholders vote “FOR” the proposal to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger), “FOR” the proposal to approve, on a non-binding advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger, and “FOR” the adjournment proposal. In considering the recommendation of the Edgewater board of directors, you should be aware that certain executive officers and directors of Edgewater will have interests in the transactions that may be different from, or in addition to, the interests of Edgewater’s stockholders generally. See “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80 of the accompanying prospectus/proxy statement.

By resolution of the Board of Directors

Jeffrey Rutherford

Chairman, Interim President and

Interim Chief Executive Officer

September 28, 2018


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YOUR VOTE IS IMPORTANT

As an Edgewater stockholder, you may vote your shares by using a toll-free telephone number or electronically over the Internet as described on the proxy form. We encourage you to vote your shares using either of these options if they are available to you. Alternatively, you may mark, sign, date and mail your proxy form in the postage-paid envelope provided. The method by which you vote does not limit your right to vote in person at the special meeting. We strongly encourage you to vote.


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ABOUT THIS PROSPECTUS/PROXY STATEMENT

This prospectus/proxy statement, which forms part of the registration statement on Form F-4 filed by New Alithya with the U.S. Securities and Exchange Commission (the “SEC”), constitutes a prospectus of New Alithya under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the New Alithya Subordinate Voting Shares to be issued to Edgewater stockholders as merger consideration and to Alithya shareholders under the arrangement. This prospectus/proxy statement also constitutes a proxy statement for Edgewater under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, it constitutes a notice of meeting with respect to the special meeting of Edgewater stockholders.

You should rely only on the information contained in or incorporated by reference into this prospectus/proxy statement. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus/proxy statement. This prospectus/proxy statement is dated September 28, 2018. You should not assume that the information contained in this prospectus/proxy statement is accurate as of any date other than that date. You should also not assume that the information incorporated by reference into this prospectus/proxy statement is accurate as of any date other than the date of such information. The mailing of this prospectus/proxy statement to Edgewater stockholders shall not create any implication to the contrary.

This prospectus/proxy statement shall not constitute an offer to sell, or the solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this prospectus/proxy statement regarding Alithya has been provided by Alithya and information contained in this prospectus/proxy statement regarding Edgewater has been provided by Edgewater.

Certain Defined Terms

Unless otherwise indicated or as the context otherwise requires, all references in this prospectus/proxy statement to:

 

   

“Alithya” refers to Alithya Group Inc. (to be renamed “Alithya Canada inc.” upon consummation of the transactions), a Québec private corporation;

 

   

“Alithya Common Shares” refers to the common shares, no par value, of Alithya;

 

   

“Alithya Multiple Voting Common Shares” refers to the multiple voting common shares, no par value, of Alithya;

 

   

“Alithya Shares” refers to the Alithya Common Shares and the Alithya Multiple Voting Common Shares;

 

   

“Alithya special meeting” refers to the special meeting of Alithya shareholders, being held on or about October 26, 2018, to vote for the approval of the arrangement resolution;

 

   

“arrangement agreement” refers to the Arrangement Agreement, dated as of March 15, 2018, among Alithya, New Alithya, U.S. Merger Sub and Edgewater, as such agreement was amended by Amendment No. 1 thereto dated September 10, 2018 and may be further amended prior to the closing in accordance with its terms;

 

   

“Code” refers to the U.S. Internal Revenue Code;

 

   

“DGCL” refers to the Delaware General Corporation Law;

 

   

“Edgewater” refers to Edgewater Technology, Inc., a Delaware corporation;

 

   

“Edgewater Common Stock” refers to shares of common stock, U.S.$0.01 par value, of Edgewater;

 

   

“Edgewater special meeting” refers to the special meeting of Edgewater stockholders, being held on October 29, 2018, to vote for the approval and adoption of the arrangement agreement and the transactions contemplated thereby (including the merger) and for the other resolutions to be considered at the meeting;


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“Exchange Act” refers to the U.S. Securities Exchange Act of 1934, as amended;

 

   

“IT” refers to information technology;

 

   

“IFRS” refers to the International Financial Reporting Standards as issued by the International Accounting Standards Board;

 

   

“merger” refers to the merger of U.S. Merger Sub with and into Edgewater under the terms of the arrangement agreement, with Edgewater as the surviving corporation in the merger;

 

   

“NASDAQ” refers to the NASDAQ Global Market;

 

   

“New Alithya” refers to Alithya Group inc. (f/k/a 9374-8572 Québec Inc.), a newly-formed Québec corporation for the purpose of holding Alithya and Edgewater following completion of the transactions;

 

   

“New Alithya Multiple Voting Shares” refers to the Class B multiple voting shares, no par value, of New Alithya;

 

   

“New Alithya Shares” refers to the New Alithya Subordinate Voting Shares and the New Alithya Multiple Voting Shares;

 

   

“New Alithya Subordinate Voting Shares” refers to the Class A subordinate voting shares, no par value, of New Alithya;

 

   

“QBCA” refers to the Business Corporations Act (Québec);

 

   

“Québec court” refers to the Superior Court of Québec;

 

   

“U.S. GAAP” refers to the accounting principles generally accepted in the United States;

 

   

“U.S. Merger Sub” refers to 9374-8572 Delaware Inc., a newly-formed wholly-owned Delaware subsidiary of New Alithya;

 

   

“SEC” refers to the U.S. Securities and Exchange Commission;

 

   

“Securities Act” refers to the U.S. Securities Exchange Act of 1933, as amended;

 

   

“transactions” refers to the arrangement and the merger;

 

   

“TSX” refers to the Toronto Stock Exchange; and

 

   

“VWAP” refers to volume-weighted average trading price of Edgewater Common Stock (which must be calculated utilizing the days on which Edgewater Common Stock actually trade) on NASDAQ.

Exchange Rates

Alithya prepares its consolidated financial statements in Canadian dollars, while Edgewater prepares its consolidated financial statements in U.S. dollars. In this prospectus/proxy statement, references to “$,” “Cdn$” and “Canadian dollars” are to the lawful currency of Canada and references to “U.S. dollars”, “USD” and “U.S.$” are to the lawful currency of the United States of America. References to the “CDN-USD exchange rate” refer to the Canadian dollar—U.S. dollar exchange rate based upon the noon buying rate as quoted by the Bank of Canada.


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The following table presents the high, low, average and period end exchange rate for one Canadian dollar expressed as one U.S. dollar for each of last five years. The average rate is calculated using the average of the exchange rates on the last day of each month during the period.

 

Fiscal year ended    Low      Average      High      Period End  
     (U.S.$)  

March 31, 2014

     0.8888        0.9503        0.9977        0.9047  

March 31, 2015

     0.7811        0.8809        0.9404        0.7811  

March 31, 2016

     0.6854        0.7642        0.8368        0.7710  

March 31, 2017

     0.7363        0.7618        0.7972        0.7548  

March 31, 2018

     0.7276        0.7798        0.8245        0.7756  

The following table presents the high, low, average and period end exchange rate for one Canadian dollar expressed as one U.S. dollar for each month during the previous six months.

 

Month    Low      Average      High      Period End  
     (U.S.$)  

March 2018

     0.7641        0.7733        0.7794        0.7756  

April 2018

     0.7747        0.7854        0.7967        0.7791  

May 2018

     0.7680        0.7768        0.7828        0.7723  

June 2018

     0.7513        0.7618        0.7744        0.7594  

July 2018

     0.7544        0.7616        0.7682        0.7682  

August 2018

     0.7603        0.7668        0.7742        0.7660  

September 2018 (through September 27, 2018)

     0.7583        0.7668        0.7749        0.7666  

As of September 27, 2018, the exchange rate for one Canadian dollar expressed as one U.S. dollar, as quoted by the Bank of Canada was $1.00 = U.S.$0.7666.

Presentation of Financial Information

This prospectus/proxy statement contains or incorporates by reference:

 

   

the audited balance sheet of New Alithya as of May 5, 2018, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board;

 

   

the audited consolidated financial statements of Alithya as of and for the fiscal years ended March 31, 2018 and March 31, 2017, prepared in accordance with IFRS;

 

   

the audited consolidated financial statements of Edgewater as of December 31, 2017 and 2016 and for the fiscal years ended December 31, 2017, 2016 and 2015, prepared in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”); and

 

   

the unaudited consolidated financial statements of Edgewater as of March 31, 2018 and June 30, 2018 and for the three- and six-months ended March 31 and June 30, 2018 and 2017, respectively, prepared in accordance with U.S. GAAP.

This prospectus/proxy statement also contains unaudited pro forma consolidated financial information that has been adjusted to reflect the effect of the transactions on the consolidated statement of financial position of Alithya as of March 31, 2018 as if the transactions had occurred on that date and to reflect the effect of the transactions on the consolidated statement of operations of Alithya for the fiscal year ended March 31, 2018 as if the transactions had occurred on April 1, 2017. For purposes of the unaudited pro forma consolidated financial information, the historical consolidated financial information of Edgewater as of and for the fiscal year ended December 31, 2017 has been reconciled to Alithya’s IFRS accounting policies. See “Unaudited Pro Forma Consolidated Financial Information” beginning on page 147 of this prospectus/proxy statement.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS

     1  

SUMMARY

     12  

The Companies (Page 111)

     12  

The Merger and the Arrangement (Page 58)

     14  

Structure of New Alithya Prior to and After the Consummation of the Transactions

     16  

Treatment of Outstanding Edgewater Equity Awards (Page 115)

     17  

Treatment of Outstanding Alithya Equity Awards (Page 115)

     17  

Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger (Page 67)

     17  

Opinion of Edgewater’s Financial Advisor (Page 73)

     18  

The Special Meeting of Edgewater Stockholders

     19  

Interests of Certain Persons in the Merger (Page 80)

     20  

Directors and Senior Management of New Alithya (Page 199)

     20  

Certain Tax Consequences of the Merger and the Arrangement (Page 90)

     21  

Delaware Appraisal Rights (Page 108)

     23  

Regulatory Approvals Required (Page 87)

     23  

Listing of New Alithya Subordinate Voting Shares on NASDAQ and the TSX (Page 109)

     24  

Conditions to the Completion of the Merger and the Arrangement (Page 133)

     24  

Termination of the Arrangement Agreement (Page 135)

     25  

Termination and Expense Fees; Effect of Termination (Page 136)

     25  

Support Agreements (Page 139)

     27  

Accounting Treatment of the Transactions (Page 89)

     27  

Restrictions on Resales under U.S. Securities Laws (Page 88)

     28  

Comparison of the Rights of Holders of Edgewater Common Stock and New Alithya Subordinate Voting Shares (Page 219)

     28  

Procedures for Exchange of Edgewater Common Stock for New Alithya Subordinate Voting Shares (Page 89)

     28  

RISK FACTORS

     29  

Risks Related to the Transactions

     29  

Risks Related to Alithya

     33  

Risks Related to Edgewater

     43  

Risks Related to New Alithya

     43  

Risks Related to New Alithya Subordinate Voting Shares

     46  

Risks Related to the Tax Consequences of the Merger and the Arrangement

     51  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     56  

THE MERGER AND THE ARRANGEMENT

     58  

The Merger and the Arrangement

     58  

Background of the Transactions

     59  

Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger

     67  

Edgewater and Alithya Unaudited Prospective Financial Information

     69  

Opinion of Edgewater’s Financial Advisor

     73  

Interests of Certain Persons in the Merger

     80  

Security Ownership of Certain Beneficial Owners and Management

     82  

Regulatory Approvals Required

     87  

Applicable Canadian Securities Laws

     88  

Restrictions on Resales under U.S. Securities Laws

     88  

Accounting Treatment of the Transactions

     89  

Procedures for Exchange of Edgewater Common Stock for New Alithya Subordinate Voting Shares

     89  

 

- i -


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(continued)

 

     Page  

CERTAIN TAX CONSEQUENCES OF THE MERGER AND THE ARRANGEMENT

     90  

Certain U.S. Federal Income Tax Considerations

     90  

Certain Canadian Federal Income Tax Considerations

     104  

DELAWARE APPRAISAL RIGHTS

     108  

LISTING OF NEW ALITHYA SUBORDINATE VOTING SHARES ON NASDAQ AND THE TSX

     109  

VOTE OF EDGEWATER STOCKHOLDERS REQUIRED TO ADOPT THE ARRANGEMENT AGREEMENT; BOARD RECOMMENDATION

     110  

THE COMPANIES

     111  

New Alithya

     111  

Alithya

     112  

Edgewater

     112  

U.S. Merger Sub

     112  

THE ARRANGEMENT AGREEMENT

     113  

Closing of the Merger and the Arrangement

     113  

Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders

     114  

Arrangement Consideration to Alithya Shareholders

     115  

Treatment of Outstanding Edgewater Equity Awards

     115  

Treatment of Outstanding Alithya Equity Awards

     115  

Governing Documents Following the Merger and the Arrangement

     116  

Exchange of Edgewater Stock Certificates Following the Merger and the Arrangement

     116  

Representations and Warranties

     117  

Material Adverse Effect

     121  

Covenants

     122  

Board Recommendations; Edgewater Stockholder Meeting

     127  

Non-Solicitation; Third Party Acquisition Proposals

     127  

Regulatory Approvals

     130  

Additional Agreements

     130  

Working Capital and Dividends

     131  

Employee Matters

     131  

Officers and Directors upon Completion of the Merger and the Arrangement

     132  

Conditions to the Completion of the Merger and the Arrangement

     133  

Indemnification

     135  

Termination of the Arrangement Agreement

     135  

Termination and Expense Fees; Effect of Termination

     136  

Obligations in Event of Termination

     137  

Expenses

     137  

Amendment

     137  

Governing Law

     137  

Injunctive Relief

     138  

THE SUPPORT AGREEMENTS

     139  

STOCKHOLDER ADVISORY VOTE ON CERTAIN COMPENSATORY ARRANGEMENTS

     140  

Background; Shareholder Resolution

     140  

Required Vote; Board Recommendation

     140  

POSSIBLE ADJOURNMENT OF THE EDGEWATER SPECIAL MEETING

     141  

SELECTED HISTORICAL FINANCIAL DATA OF NEW ALITHYA

     142  

SELECTED HISTORICAL FINANCIAL DATA OF ALITHYA

     143  

SELECTED HISTORICAL FINANCIAL DATA OF EDGEWATER

     145  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     147  

 

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TABLE OF CONTENTS

(continued)

 

     Page  

INFORMATION ABOUT ALITHYA

     159  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALITHYA

     170  

INFORMATION ABOUT EDGEWATER

     191  

INFORMATION ABOUT NEW ALITHYA

     198  

Overview

     198  

Competitive Strengths and Strategies of New Alithya

     198  

Directors and Senior Management of New Alithya

     199  

Compensation of Directors and Senior Management of New Alithya

     204  

Director Independence

     210  

Committees of the Board of Directors of New Alithya

     210  

Principal Shareholders

     211  

Dividend Policy

     212  

New Alithya Articles and By-laws

     212  

Employees

     212  

COMPARATIVE PER SHARE DATA

     213  

COMPARATIVE PER SHARE MARKET PRICE DATA AND DIVIDEND INFORMATION

     214  

DESCRIPTION OF NEW ALITHYA SHARES

     215  

COMPARISON OF THE RIGHTS OF HOLDERS OF EDGEWATER COMMON STOCK AND NEW ALITHYA SUBORDINATE VOTING SHARES

     219  

LEGAL MATTERS

     235  

EXPERTS

     235  

ENFORCEABILITY OF CIVIL LIABILITIES

     235  

EXCHANGE CONTROLS

     235  

HOUSEHOLDING OF PROSPECTUS/PROXY STATEMENT

     236  

WHERE YOU CAN FIND MORE INFORMATION

     236  

INDEX TO FINANCIAL STATEMENTS OF 9374-8572 QUÉBEC INC.

     F-1  

INDEX TO FINANCIAL STATEMENTS OF ALITHYA GROUP INC.

     F-1  

ANNEX A: ARRANGEMENT AGREEMENT

     A-1  

ANNEX B: INTERIM ORDER

     B-1  

ANNEX C: FORM OF AMENDED ARTICLES OF INCORPORATION OF NEW ALITHYA

     C-1  

ANNEX D: FORM OF BY-LAWS OF NEW ALITHYA

     D-1  

ANNEX E: OPINION OF EDGEWATER’S FINANCIAL ADVISOR

     E-1  

 

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QUESTIONS AND ANSWERS

The following are answers to some of the questions you may have as an Edgewater stockholder. These questions and answers only highlight some of the information contained in this prospectus/proxy statement. They may not contain all the information that is important to you. You should read carefully this entire prospectus/proxy statement, including the annexes and the documents incorporated by reference into this prospectus/proxy statement, to understand fully the transactions and the voting procedures for the special meeting of Edgewater stockholders.

Questions and Answers about the Transactions for Edgewater Stockholders

 

Q:

Why am I receiving this prospectus/proxy statement?

 

A:

This prospectus/proxy statement is being provided to Edgewater stockholders as part of a solicitation of proxies by the Edgewater board of directors for use at the special meeting of Edgewater stockholders, which is referred to in this prospectus/proxy statement as the “special meeting,” and at any adjournments or postponements of such meeting. This prospectus/proxy statement provides Edgewater stockholders with information they need to be able to vote or instruct their vote to be cast at the special meeting.

 

Q:

What are the proposals on which I am being asked to vote?

 

A:

There are three matters scheduled for a vote at the special meeting:

 

   

a proposal to approve and adopt the arrangement agreement and transactions contemplated thereby (including the merger) (Proposal 1);

 

   

a proposal to approve, on a non-binding advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger (Proposal 2); and

 

   

a proposal to approve the adjournment of the special meeting, if necessary or appropriate to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger) (Proposal 3).

Approval of Proposals 2 and 3 is not a condition to the completion of the arrangement or the merger.

 

Q:

What is the merger?

 

A:

As part of the transactions, U.S. Merger Sub will merge with and into Edgewater, with Edgewater as the surviving corporation becoming a wholly-owned subsidiary of New Alithya.

 

Q:

What are Edgewater’s reasons for the merger?

 

A:

The Edgewater board of directors considered many factors in making its determination that the arrangement agreement and the transactions contemplated thereby (including the merger) are fair and reasonable and in the best interests of Edgewater and Edgewater’s stockholders. For a more complete discussion of these factors, see “The Merger and the Arrangement—Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger” beginning on page 67.

In considering the recommendation of the Edgewater board of directors, you should be aware that certain executive officers and directors of Edgewater will have interests in the transactions that may be different from, or in addition to, the interests of Edgewater’s stockholders generally. See “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80.

 

Q:

Why am I being asked to approve, on a non-binding advisory basis, certain merger-related compensatory arrangements between Edgewater and its named executive officers?

 

A:

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is referred to in this prospectus/proxy statement as the “Dodd-Frank Act,” and Section 14A of the Exchange Act, Edgewater

 

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  stockholders are entitled to vote to approve, on a non-binding advisory basis, certain compensation arrangements of the named executive officers of Edgewater that are based on or otherwise relate to the merger as disclosed in this prospectus/proxy statement. See “Stockholder Advisory Vote on Certain Compensatory Arrangements” beginning on page 140.

Approval by the Edgewater stockholders of merger-related compensation arrangements of the Edgewater named executive officers is not a condition to completion of the merger. In addition, because the vote is advisory in nature, it will not be binding on Edgewater. Regardless of the outcome of this advisory vote, such compensation may be payable, subject only to the Edgewater board of directors’ discretion and the conditions applicable thereto, if the merger is approved. The terms of the merger-related compensation is described under “The Merger and the Arrangement—Interests of Certain Persons in the Merger—Change-in-Control Agreements with Executive Officers” beginning on page 81 and “Stockholder Advisory Vote on Certain Compensatory Arrangements” beginning on page 140.

 

Q:

What are the voting recommendations of the Edgewater board of directors?

 

A:

After careful consideration, the Edgewater board of directors has unanimously approved and declared advisable the arrangement agreement and transactions contemplated thereby (including the merger), and has determined that the arrangement agreement and the merger are fair to and in the best interests of Edgewater and its stockholders. The Edgewater board of directors recommends that you vote your shares:

 

   

“FOR” approval and adoption of the arrangement agreement and transactions contemplated thereby (including the merger) (Proposal 1);

 

   

“FOR” approval, on a non-binding advisory basis, of certain compensatory arrangements between Edgewater and its named executive officers relating to the merger (Proposal 2); and

 

   

“FOR” approval of the adjournment of the special meeting, if necessary or appropriate to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger) (Proposal 3).

In considering the recommendation of the board of directors of Edgewater, you should be aware that certain executive officers and directors of Edgewater will have interests in the transactions that may be different from, or in addition to, the interests of Edgewater’s stockholders generally. See “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80.

 

Q:

Has the Alithya board of directors unanimously approved the arrangement agreement and the transactions contemplated thereby (including the arrangement)?

 

A:

After careful consideration, the Alithya board of directors has unanimously approved and declared advisable the arrangement agreement and transactions contemplated thereby (including the arrangement).

 

Q:

What is the Edgewater stockholder vote required to approve each proposal?

 

A:

Proposal 1, the adoption of the arrangement agreement and the transactions contemplated thereby (including the merger), requires the affirmative vote of holders of a majority of the outstanding Edgewater Common Stock. The other proposals require the affirmative vote of holders of a majority of the Edgewater Common Stock entitled to vote on the applicable proposal that are present or represented by proxy at the special meeting.

 

Q:

What is the Alithya shareholder vote required to approve the arrangement resolution?

 

A:

The approval of the arrangement resolution requires the affirmative vote of at least 66 2/3% of the votes cast by Alithya shareholders present in person or represented by proxy at the Alithya special meeting.

 

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Q:

How many shares will Edgewater’s executive officers and directors be entitled to vote at the special meeting? Do you expect them to vote in favor of the proposals?

 

A:

As of September 27, 2018, the last practicable day before the date of this prospectus/proxy statement, Edgewater’s executive officers and directors, together with the stockholders with which certain of Edgewater’s directors are affiliated or associated, had the right to vote approximately 2.3 million shares of Edgewater Common Stock, representing approximately 15.9% of the Edgewater Common Stock then outstanding and entitled to vote at the special meeting. Edgewater expects that its executive officers and directors, and the stockholders with which certain of Edgewater’s directors are affiliated or associated, will vote “FOR” each of the proposals described in this prospectus/proxy statement.

 

Q:

What votes have been agreed upon pursuant to the support agreements between Edgewater and certain Edgewater stockholders?

 

A:

Pursuant to the support agreements, certain Edgewater stockholders, owning in the aggregate approximately 17% of the outstanding Edgewater Common Stock as of the date of the arrangement agreement, have agreed to vote their Edgewater Common Stock in favor of the transactions and against, among other things, another acquisition proposal or merger and any other action that would reasonably be likely to prevent, delay or impede the consummation of the transactions.

 

Q:

What will the Edgewater stockholders receive as consideration in the merger?

 

A:

If the merger is consummated, Edgewater stockholders will receive 1.3118 newly issued New Alithya Subordinate Voting Shares in exchange for each share of Edgewater Common Stock held by such stockholders. However, Alithya has a termination right if the volume-weighted average trading price (the “VWAP”) of the Edgewater Common Stock on the NASDAQ Global Market (“NASDAQ”) for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million.

In addition to the right of Edgewater stockholders to receive New Alithya Subordinate Voting Shares in the transactions, Edgewater will declare to Edgewater stockholders and option holders of record immediately prior to the anticipated closing date of the transactions a special dividend equal to U.S.$20.5 million, provided that (i) the total amount of the dividend will proportionately increase or decrease to the extent, if any, that Edgewater’s “Net Cash” (as defined in the arrangement agreement) is then greater or less than U.S.$8.5 million, as the case may be, and (ii) the dividend will be payable either in cash (for Edgewater’s stockholders) or reflected through adjustment (for holders of Edgewater’s options) to the exercise price of such options, as the case may be. Payment of the special dividend will be contingent upon the closing of the transactions and will be declared at least 10 days prior to, and be paid within 10 days following, such closing. The application of the adjustment formula described above will likely result in a special dividend amount that is less than U.S.$20.5 million. Based on Edgewater’s currently expected “Net Cash” as of the closing of the transactions, the total amount of the special dividend would have been approximately U.S.$16.0 million, or approximately U.S.$1.07 for each share of Edgewater Common Stock then outstanding (applying the full dilution, in-the-money options treatment to the current basic shares outstanding), if the closing had occurred immediately following September 27, 2018. However, the actual amount of the special dividend may be either higher or lower based on Edgewater’s business, financial condition and liquidity between September 27, 2018 and the dividend declaration date.

The New Alithya Subordinate Voting Shares to be issued to the Edgewater stockholders and Alithya shareholders will be registered with the SEC. It is a mutual condition to the effectiveness of the transactions that the New Alithya Subordinate Voting Shares be approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the Toronto Stock Exchange (the

 

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“TSX”) (subject only to customary closing conditions). New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX. Edgewater Common Stock will be delisted from NASDAQ and deregistered under the Exchange Act upon or as soon as practicable after the completion of the transactions, and Edgewater will no longer be required to file periodic reports with the SEC.

 

Q:

What percentage of New Alithya Shares and total voting power of New Alithya Shares will the Edgewater stockholders and Alithya shareholders own following the transactions?

 

A:

Based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 42% and 58% of the total number of outstanding New Alithya Shares on a fully-diluted basis, respectively. However, because New Alithya Multiple Voting Shares will be issued only to those Alithya shareholders which now hold Alithya Multiple Voting Common Shares, the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 18% and 82% of the total voting power of New Alithya Shares, respectively, upon consummation of the transactions.

 

Q:

How are Edgewater stock options treated in the merger?

 

A:

Upon consummation of the merger, each outstanding option to purchase Edgewater Common Stock under the Edgewater equity incentive plans will be converted, on substantially the same terms and conditions as were applicable under such option before the consummation of the merger, into an option to acquire a number of New Alithya Subordinate Voting Shares equal to the number of shares of Edgewater Common Stock subject to such option immediately prior to the consummation of the merger multiplied by the equity exchange ratio of 1.3118, subject to potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement, at an exercise price per share equal to the exercise price per share applicable to such option immediately prior to the consummation of the merger divided by the equity exchange ratio.

 

Q:

How are Edgewater’s other equity awards treated in the merger?

 

A:

Upon consummation of the merger, each other equity award that is outstanding immediately prior to the consummation of the merger will be converted into a right to receive, on substantially the same terms and conditions as were applicable under such equity award immediately prior to the consummation of the merger, the number of New Alithya Subordinate Voting Shares equal to the number of shares of Edgewater Common Stock subject to such equity award immediately prior to the consummation of the merger multiplied by the equity exchange ratio of 1.3118, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

 

Q:

What is required to complete the transactions?

 

A:

The obligation of Edgewater and Alithya to consummate the merger and the arrangement, respectively, and the transactions contemplated by the arrangement agreement is subject to certain conditions, including conditions with respect to approval of the merger by Edgewater stockholders; approval of the arrangement resolution by Alithya shareholders; approval by the Superior Court of Québec (the “Québec court”) of the arrangement; accuracy of representations and warranties of the other party to the applicable standard provided by the arrangement agreement; receipt by New Alithya of agreements not to sell, during the 12 months following the consummation of the merger, their New Alithya Shares signed by, among others, certain major current stockholders of Edgewater and the major current shareholders of Alithya and by the

 

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  directors and officers of each of Edgewater and Alithya who will remain involved with the post-closing operations of New Alithya; no result, fact or circumstance shall have occurred or arisen that had or would reasonably be expected to have a material adverse effect on Edgewater or Alithya; compliance by the other party with its covenants in the arrangement agreement in all material respects; all required regulatory clearances being obtained and remaining in full force and effect and applicable waiting periods having expired or been terminated, in each case without the imposition of a restraint; the approval of NASDAQ for listing (subject only to official notice of issuance) and the conditional approval by the TSX (subject only to customary listing conditions) of the New Alithya Subordinate Voting Shares to be issued in the merger and the arrangement; and the continued effectiveness of the registration statement of which this prospectus/proxy statement forms a part, as well as other customary closing conditions. See The Arrangement Agreement—Conditions to the Completion of the Merger and the Arrangement beginning on page 133.

 

Q:

Will appraisal rights be available for dissenting Edgewater stockholders?

 

A:

Appraisal rights will not be available to Edgewater stockholders in connection with the transactions contemplated by the arrangement agreement (including the merger).

 

Q:

When are the merger and arrangement expected to be completed?

 

A:

As of the date of this prospectus/proxy statement, the merger and the arrangement are expected to be completed in the fourth quarter of 2018. However, the required vote of Edgewater stockholders and Alithya shareholders to approve the merger and the arrangement at their respective special meetings, the approval of the arrangement by the Québec court, as well as the necessary regulatory consents and approvals, must first be obtained and certain other conditions specified in the arrangement agreement must be satisfied or, to the extent permissible, waived. No assurance can therefore be provided as to when or if the transactions contemplated by the arrangement agreement (including the merger) will be completed.

 

Q:

What will be the relationship between Edgewater and New Alithya after the transactions?

 

A:

Following completion of the transactions, Edgewater will be a wholly-owned subsidiary of New Alithya. However, as New Alithya was formed at the time of the transactions only for issuing equity instruments to permit the combination of Alithya and Edgewater, it will not be identified as the accounting acquirer of Edgewater. Alithya will be the accounting acquirer of Edgewater since its shareholders are expected to hold a majority of voting securities of New Alithya upon completion of the transactions. Accordingly, the acquisition of Edgewater by Alithya will be accounted for using the acquisition method of accounting in accordance with IFRS with the Edgewater assets acquired and Edgewater liabilities assumed being measured at their fair values, including net tangible and identifiable intangible assets as of the closing of the transactions. Any excess of the purchase price over those fair values will be recorded as goodwill. See “The Merger and the Arrangement—Accounting Treatment of the Transactions” beginning on page 89.

 

Q:

What are the material U.S. federal income tax consequences of the merger to U.S. stockholders of Edgewater?

 

A:

The parties expect that U.S. holders of Edgewater Common Stock will be subject to U.S. federal income taxation in connection with the merger and arrangement. As described more fully under the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations,” the parties intend for the merger and the arrangement collectively to qualify as a transfer described in Section 351 of the U.S. Internal Revenue Code (the “Code”). In addition, although the treatment of the special dividend is subject to uncertainty, the parties expect to take the position that the special dividend is treated, for U.S. federal income tax purposes, as consideration received by former stockholders of Edgewater in exchange for Edgewater Common Stock as part of the merger and the arrangement and not as a separate pre-merger distribution by Edgewater. The treatment of the special dividend as consideration received by holders of Edgewater Common Stock as part of the merger and arrangement, as opposed to a separate pre-closing distribution by Edgewater, may have an adverse effect on

 

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  the U.S. federal income tax treatment of the merger and arrangement to a U.S. holder, depending on each such holder’s particular circumstances.

If the special dividend is treated as consideration received as part of the merger and arrangement, then, subject to certain qualifications discussed under the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. Holders”, U.S. holders of Edgewater Common Stock are expected to be subject to the following U.S. federal income tax treatment in connection with the merger and arrangement:

 

   

a U.S. holder will recognize gain, but not loss, in an amount equal to the lesser of (1) the excess of the sum of (i) the fair market value of New Alithya Subordinate Voting Shares received, and (ii) cash received pursuant to the special dividend, over such U.S. holder’s tax basis in Edgewater Common Stock surrendered, and (2) the amount of cash received pursuant to the special dividend by such holder;

 

   

the U.S. holder’s aggregate tax basis of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will be the same as the aggregate tax basis of the shares of Edgewater Common Stock surrendered in exchange therefor, decreased by the amount of cash received pursuant to the special dividend, and increased by the amount of gain recognized on the exchange; and

 

   

the U.S. holder’s holding period of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will include the holding period of the Edgewater Common Stock surrendered therefor.

Even if the merger and arrangement collectively qualify as a transfer described in Section 351 of the Code, U.S. holders are cautioned that if Section 367(a) of the Code applies to the merger and arrangement, a U.S. holder would be required to recognize gain, if any (but not loss), on the disposition of Edgewater Common Stock in an amount equal to the excess of (i) the sum of the fair market value of New Alithya Subordinate Voting Shares and special dividend received by such holder, over (ii) the holder’s adjusted tax basis in the shares of Edgewater Common Stock surrendered. This might result in a U.S. holder of Edgewater Common Stock recognizing a greater amount of gain for U.S. federal income tax purposes than such holder would have recognized if Section 367(a) of the Code did not apply.

The characterization of the transactions contemplated in the arrangement agreement is subject to uncertainty and U.S. holders are cautioned that the application of certain rules, including the potential application of Section 367(a) of the Code, that may materially affect the U.S. federal income tax treatment of these transactions depend on factors that cannot be determined until the closing of the merger and arrangement. It is also important to note that the U.S. federal income tax consequences described above may not apply to certain Edgewater stockholders or in all circumstances. Your tax consequences will depend on your individual situation. Accordingly, U.S. holders of Edgewater Common Stock should consult with their tax advisor for a full understanding of the U.S. federal income tax consequences of the merger and arrangement having regard to such holder’s particular circumstances, as well as any tax consequences that may arise from the laws of any other taxing jurisdiction.

The summary above is qualified in its entirety by the more detailed discussion provided in the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations” beginning on page 90.

Questions and Answers about the Edgewater Special Meeting of Stockholders and Voting

 

Q:

Where and when will the special meeting be held?

 

A:

You are invited to attend the special meeting to vote on the proposals described in this prospectus/proxy statement. The special meeting will be held on October 29, 2018, at 10:00 a.m. Eastern Time, at the offices

 

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  of McDonald Hopkins LLC, 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114. Information on how to vote at the special meeting is discussed below. However, you do not need to attend the special meeting to vote your shares.

 

Q:

Who can vote at the special meeting?

 

A:

Only stockholders of record of Edgewater at the close of business on September 28, 2018 will be entitled to vote at the special meeting. On the record date, there were 14,611,571 shares of Edgewater Common Stock outstanding and entitled to vote. Each share of Edgewater Common Stock is entitled to one vote on each matter to be voted on at the special meeting. Your proxy card indicates the number of votes you have.

Stockholders of Record: Shares Registered in Your Name

If on September 28, 2018 your shares were registered directly in your name with Edgewater’s transfer agent, Computershare Investor Services, then you are a stockholder of record. As a stockholder of record, you may vote in person at the special meeting or vote by proxy. Whether or not you plan to attend the special meeting, Edgewater urges you to vote by proxy over the telephone or on the Internet as instructed below, or fill out and return an Edgewater proxy card.

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

If on September 28, 2018 your shares were held not in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and this prospectus/proxy statement is being sent to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the special meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account by following the instructions that the broker or other agent provides you along with this prospectus/proxy statement. You are also invited to attend the special meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid proxy from your broker or other agent.

 

Q:

How do I vote?

 

A:

For each of the proposals, you may vote “FOR” or “AGAINST,” or you may abstain from voting.

Stockholders of Record: Shares Registered in Your Name

If you are a stockholder of record, you may vote in person at the special meeting, you may vote by proxy using the enclosed Edgewater proxy card, or you may vote by proxy over the telephone or on the Internet as instructed below. Whether or not you plan to attend the special meeting, Edgewater urges you to vote by proxy to ensure your vote is counted. You may still attend the special meeting and vote in person even if you have already voted by proxy.

 

   

To vote in person, come to the special meeting and we will give you a ballot when you arrive.

 

   

To vote using an Edgewater proxy card, simply complete, sign and date the enclosed Edgewater proxy card and return it promptly in the envelope provided. If you return your signed Edgewater proxy card to Edgewater before the special meeting, the proxy holders will vote your shares as you direct.

 

   

To vote by telephone, dial toll-free 1-888-693-8683 within the U.S., U.S. territories and Canada using a touch-tone phone and follow the recorded instructions. You will be asked to provide the control number from the enclosed Edgewater proxy card. Your vote must be received by 11:59 p.m. Eastern Time, on October 28, 2018 to be counted.

 

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To vote through the Internet, go to www.cesvote.com to complete an electronic Edgewater proxy card. You will be asked to provide the control number from the enclosed Edgewater proxy card. Your vote must be received by 11:59 p.m. Eastern Time, on October 28, 2018 to be counted.

Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Agent

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a prospectus/proxy statement along with voting instructions from that organization rather than from Edgewater. Simply follow the voting instructions provided by your broker, bank or other agent to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker, bank or other agent. To vote in person at the special meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the voting instructions provided by your broker, bank or other agent and included with this prospectus/proxy statement, or contact your broker, bank or other agent to request a proxy form.

Edgewater provides Internet proxy voting to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.

 

Q:

If my shares are held in “street name” by my broker, bank or other agent, will my broker, bank or other agent vote my shares for me?

 

A:

Only if you provide your bank, broker or other agent with instructions on how to vote your shares. If you do not provide the organization that holds your shares with specific instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters such as those being presented at the special meeting. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, that organization will inform the inspector of elections for the special meeting that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.” When Edgewater’s inspector of elections tabulates the votes for any particular matter, broker non-votes will be counted for purposes of determining whether a quorum is present, but will not be counted toward the vote total for any proposal. Edgewater expects that each of the proposals presented at the special meeting will be considered non-routine matters, so Edgewater encourages you to provide voting instructions to the organization that holds your shares to ensure that your vote is counted on all three proposals.

 

Q:

How many votes do I have?

 

A:

On each matter to be voted upon, you have one vote for each share of Edgewater Common Stock you own as of September 28, 2018. Your proxy card indicates the number of votes you have.

 

Q:

What is the quorum requirement?

 

A:

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares entitled to vote are present at the special meeting in person or represented by proxy. On the record date, there were 14,611,571 shares of Edgewater Common Stock outstanding and entitled to vote.

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other agent) or if you vote in person at the special meeting. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum. If there is no quorum, the chairperson of the special meeting or a majority of shares present at the special meeting in person or represented by proxy may adjourn the special meeting to another date.

 

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Q:

How many votes are needed to approve each proposal?

 

A:

Proposal 1: The proposal to adopt the arrangement agreement and transactions contemplated thereby (including the merger) must receive a “FOR” vote from the holders of at least a majority of the Edgewater Common Stock outstanding on the record date for the special meeting.

Proposal 2: The proposal to approve, on a non-binding advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger contemplated by the arrangement agreement must receive a “FOR” vote from at least a majority of the Edgewater Common Stock represented either in person or by proxy at the special meeting and entitled to vote, although such vote will not be binding on Edgewater.

Proposal 3: The proposal to approve the adjournment of the special meeting, if necessary or appropriate to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger) must receive a “FOR” vote from at least a majority of the Edgewater Common Stock represented either in person or by proxy at the special meeting and entitled to vote.

 

Q:

How are votes counted?

 

A:

Votes will be counted by the inspector of election appointed for the special meeting, who will separately count “FOR,” “AGAINST,” “ABSTAIN” and broker non-votes. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the special meeting. Abstentions will be counted towards the tabulation of shares present in person or represented by proxy and will have the same effect as votes “AGAINST” each of the proposals. Although broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum, broker non-votes will not be counted for purposes of determining the number of shares present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not affect the outcome of the vote on Proposals 2 and 3. A broker non-vote will, however, have the same effect as an “AGAINST” vote on Proposal 1. All Edgewater Common Stock that has been properly voted or represented by proxy and not revoked will be voted at the special meeting in accordance with your instructions. If you execute the proxy but do not give voting instructions, the Edgewater Common Stock represented by that proxy will be voted “FOR” each of Proposals 1 through 3.

 

Q:

Should I send in my stock certificates now?

 

A:

No. Edgewater stockholders should keep their existing stock certificates at this time. If the proposed merger and the arrangement are completed, you will receive written instructions for exchanging your existing stock certificates for New Alithya Subordinate Voting Shares.

 

Q:

What do I do if I have lost my stock certificate?

 

A:

If your certificate has been lost, stolen or destroyed, you will need to provide an affidavit of that fact, and, if required by New Alithya, you may be required to post a bond, in such reasonable and customary amount as New Alithya may direct, as indemnity against any claim that may be made against it with respect to such certificate. The exchange agent shall, in exchange for such lost, stolen or destroyed certificate, issue the New Alithya Subordinate Voting Shares deliverable in respect thereof pursuant to the arrangement agreement.

 

Q:

What do I need to do now?

 

A:

After carefully reading and considering the information contained in this prospectus/proxy statement, including the annexes and the documents incorporated by reference, vote your Edgewater Common Stock as described in “—How do I vote?” beginning on page 7. Whether or not you plan to attend the special meeting, Edgewater urges you to vote by proxy to ensure your vote is counted.

 

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Q:

Can I change my vote after submitting my proxy?

 

A:

Yes. You can revoke your proxy at any time before the final vote at the special meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:

 

   

You may submit another valid, properly completed Edgewater proxy card with a later date.

 

   

You may grant a subsequent proxy by telephone or through the Internet.

 

   

You may send a timely written notice that you are revoking your proxy to Edgewater’s Secretary at 200 Harvard Mill Square, Suite 210 (prior to October 1, 2018) or Suite 320 (beginning October 1, 2018), Wakefield, MA 01880; telephone: (781) 246-3343.

 

   

You may attend the special meeting and vote in person. Simply attending the special meeting will not, by itself, revoke your proxy. If your shares are held of record in the name of a broker, bank or other agent, you must obtain a proxy, executed in your favor from the holder of record, to be able to vote at the special meeting.

Your most recent Edgewater proxy card or telephone or Internet proxy is the one that is counted.

If your shares are held of record by your broker, bank or other agent, you should follow the instructions provided by such organization.

 

Q:

What happens if I sell my Edgewater Common Stock after the record date but before the special meeting?

 

A:

If you transfer your Edgewater Common Stock after the record date but before the date of the special meeting, you will retain your right to vote at the special meeting. However, you will not have the right to receive any New Alithya Subordinate Voting Shares in exchange for your former Edgewater Common Stock or to receive the special dividend payable by Edgewater if and when the merger is completed. In order to receive New Alithya Subordinate Voting Shares in exchange for your Edgewater Common Stock and such special dividend, you must hold your Edgewater Common Stock through the completion of the merger and the arrangement.

 

Q:

What will happen if I return my proxy card without indicating how to vote?

 

A:

Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the special meeting. Abstentions will be counted towards the tabulation of shares present in person or represented by proxy and will have the same effect as votes “AGAINST” each of the proposals.

 

Q:

What will happen if I fail to vote or I abstain from voting?

 

A:

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record and you sign and return an Edgewater proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Edgewater board of directors on all matters presented in this prospectus/proxy statement, which recommendations are summarized under “—What are the voting recommendations of the Edgewater board of directors?” beginning on page 2, or as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the special meeting.

Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Agent

If you are a beneficial owner of shares held in “street name” and you do not provide the organization that holds your shares with specific instructions, under the rules of various national and regional securities

 

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exchanges, the organization that holds your shares may generally vote on routine matters but cannot vote on non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares will inform the inspector of elections for the special meeting that it does not have the authority to vote on this matter with respect to your shares. This is generally referred to as a “broker non-vote.” When Edgewater’s inspector of elections tabulates the votes for any particular matter, broker non-votes will be counted for purposes of determining whether a quorum is present, but will not be counted toward the vote total for any proposal. Edgewater expects that each of the proposals presented at the special meeting will be considered non-routine matters, so Edgewater encourages you to provide voting instructions to the organization that holds your shares to ensure that your vote is counted on all three proposals.

 

Q:

How can I find out the results of the voting at the special meeting?

 

A:

Edgewater expects to make a public announcement of the preliminary voting results as soon as practicable following the special meeting. Final voting results are expected to be published in a current report on Form 8-K filed by Edgewater with the SEC on or before the fourth business day following the special meeting. If final voting results are not available to Edgewater in time to file a Form 8-K within four business days following the special meeting, Edgewater intends to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to Edgewater, file an additional Form 8-K to publish the final results.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Edgewater will pay for the entire cost of soliciting proxies. In addition to this prospectus/proxy statement, Edgewater’s directors and employees may also solicit proxies in person, by telephone, or by other means of communication.

Directors and employees will not be paid any additional compensation for soliciting proxies. Edgewater may also reimburse brokerage firms, banks and other agents for the reasonable out-of-pocket cost of forwarding proxy materials to beneficial owners. Edgewater has also retained InvestorCom to assist in soliciting proxies. Edgewater will pay InvestorCom a base fee of approximately U.S.$20,000, plus reasonable out-of-pocket expenses for these services.

 

Q:

Who can help answer my questions?

 

A:

If you have any questions about the transactions, need assistance in voting your shares, or if you need additional copies of this prospectus/proxy statement or the enclosed Edgewater proxy card, you should contact Edgewater’s proxy solicitor:

InvestorCom

John Glenn Grau

Toll Free: (877) 972-0099

Direct: (203) 295-7841

Main: (203) 972-9300 ext. 110

 

Q:

Where can I find more information about Edgewater?

 

A:

You can find more information about Edgewater from the various sources described under “Where You Can Find More Information” beginning on page 236.

 

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SUMMARY

This summary highlights selected information contained in this prospectus/proxy statement and may not contain all of the information that is important to you. You should read carefully this entire prospectus/proxy statement, including the annexes and the documents incorporated by reference, to fully understand the transactions and the voting procedures for the special meeting. See also the section entitled “Where You Can Find More Information” beginning on page 236. The page references have been included in this summary to direct you to a more complete description of the topics presented below.

The Companies (Page 111)

Alithya Group inc. (f/k/a/ 9374-8572 Québec Inc.)

700 De La Gauchetière Street West, Suite 2400

Montréal, Québec, Canada H3B 5M2

(+1) (514) 315-2824

New Alithya is a private company incorporated under the laws of Québec on March 8, 2018 for the purpose of holding Alithya and Edgewater following completion of the transactions. On September 10, 2018, New Alithya changed its name to Alithya Group inc. To date, New Alithya has not conducted any activities other than those incident to its formation, the execution of the arrangement agreement and the taking of certain steps in connection thereto, including the preparation of applicable filings under the U.S. securities laws and regulatory filings made in connection with the transactions.

Following the consummation of the transactions, Alithya and Edgewater will be wholly-owned subsidiaries of New Alithya. Based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 42% and 58% of the total number of outstanding New Alithya Shares on a fully-diluted basis, respectively. However, because New Alithya Multiple Voting Shares will be issued only to those Alithya shareholders which now hold Alithya Multiple Voting Common Shares, the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 18% and 82% of the total voting power of New Alithya Shares, respectively, upon consummation of the transactions.

It is a mutual condition to the transactions that as of the effective time of the transactions (the “effective time”), the New Alithya Subordinate Voting Shares be approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the TSX (subject only to satisfaction of customary listing conditions). New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon new Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX. Edgewater Common Stock will be delisted from NASDAQ and deregistered under the Exchange Act upon or as soon as practicable after the completion of the transactions, and Edgewater will no longer be required to file periodic reports with the SEC.

Foreign Private Issuer

Upon consummation of the transactions, New Alithya is expected to be a foreign private issuer under applicable U.S. federal securities laws, and therefore, it will not be required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act. See “Risk Factors—Risks Related to the New



 

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Alithya Subordinate Voting Shares—New Alithya is expected to be a foreign private issuer and subject to different U.S. securities laws and regulations and corporate governance requirements than a domestic U.S. issuer.

Emerging Growth Company

Upon consummation of the transactions, New Alithya is expected to be an “emerging growth company,” as defined in the U.S. Jumpstart Our Business Start-ups Act (the “JOBS Act”). As an emerging growth company, New Alithya will be eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain shareholder approval of any golden parachute payments not previously approved.

New Alithya could remain an emerging growth company until the last day of its fiscal year following the fifth anniversary of the consummation of the transactions. However, if (i) either (x) New Alithya’s non-convertible debt issued within a three-year period exceeds U.S.$1.0 billion or (y) its total revenues exceed U.S.$1.07 billion or (ii) it is deemed to be a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, New Alithya would cease to be an emerging growth company as of the following fiscal year.

Alithya Group Inc.

700 De La Gauchetière Street West, Suite 2400

Montréal, Québec, Canada H3B 5M2

(+1) (514) 315-2824

Alithya is a leading Canadian strategy and digital technology consulting firm offering a full range of services in strategy, architecture, organizational performance, transformation and solution delivery. Alithya prioritizes the achievement of business objectives on every project through the optimal use of digital technology. Alithya’s core business offerings include technology consulting, strategic consulting and hiring solutions. Its clients are mainly active in financial services, insurance, telecommunications, energy, transportation, health care, retail and government service. Alithya also closely collaborates with several strategic partners, including Oracle Corporation (“Oracle”) and Microsoft Corporation (“Microsoft”), to provide its clients with solutions best suited to their needs. Upon consummation of the transactions, Alithya will be renamed “Alithya Canada inc.”

Edgewater Technology, Inc.

200 Harvard Mill Square, Suite 210

(prior to October 1, 2018) or Suite 320

(beginning October 1, 2018)

Wakefield, MA 01880

(781) 246-3343

Edgewater is a Delaware corporation offering strategic consulting services designed to assist its clients in improving financial and operations performance across their enterprises. Delivering both on premise and in the cloud, Edgewater offers two major channel-based services. In the Oracle channel, Edgewater Technology-Ranzal, LLC (“Edgewater Ranzal”), an Edgewater subsidiary, provides business analytics solutions leveraging Oracle EPM, Business Intelligence and Big Data technologies. In the Microsoft channel, Fullscope, Inc. (“Edgewater Fullscope”), an Edgewater subsidiary, delivers Dynamics AX ERP, Business Intelligence and CRM solutions primarily in the manufacturing area. Shares of Edgewater Common Stock trade on NASDAQ under the symbol “EDGW.”



 

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9374-8572 Delaware Inc.

251 Little Falls Drive

Wilmington, Delaware 19808

(+1) (514) 315-2824

U.S. Merger Sub is a Delaware corporation and a wholly-owned subsidiary of New Alithya, incorporated on March 14, 2018. To date, U.S. Merger Sub has not conducted any activities other than those incident to its formation, the execution of the arrangement agreement and the taking of certain steps in connection therewith. As part of the transactions, U.S. Merger Sub will merge with and into Edgewater, with Edgewater as the surviving corporation becoming a wholly-owned subsidiary of New Alithya.

The Merger and the Arrangement (Page 58)

Under the terms of the arrangement agreement, (a) New Alithya will acquire Alithya pursuant to a plan of arrangement under the laws of Québec, Canada and (b) U.S. Merger Sub will merge with and into Edgewater, with Edgewater as the surviving corporation in the merger. As a result of the transactions, both Edgewater and Alithya will become wholly-owned subsidiaries of New Alithya. Upon consummation of the transactions, Alithya will be renamed “Alithya Canada inc.”

As consideration for the merger, Edgewater stockholders will receive 1.3118 newly issued New Alithya Subordinate Voting Shares in exchange for each share of Edgewater Common Stock held by such stockholders. However, Alithya has a termination right if the VWAP of the Edgewater Common Stock on NASDAQ for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million. If the exchange ratio applicable to the issuance of New Alithya Subordinate Voting Shares for Edgewater Common Stock were to be adjusted in accordance with this provision, the adjusted exchange ratio would be applicable for all other purposes under the arrangement agreement, including the issuance by New Alithya of options for New Alithya Subordinate Voting Shares in replacement for stock options now outstanding for Edgewater Common Stock, as described below under “—Treatment of Outstanding Edgewater Equity Awards.”

In addition to the right of Edgewater stockholders to receive New Alithya Subordinate Voting Shares in the transactions, Edgewater will declare to Edgewater stockholders and option holders of record immediately prior to the anticipated closing date of the transactions a special dividend equal to U.S.$20.5 million, provided that (i) the total amount of the dividend will proportionately increase or decrease to the extent that Edgewater’s “Net Cash” (as defined in the arrangement agreement) is then greater or less than U.S.$8.5 million, as the case may be, and (ii) the dividend will be payable either in cash (for Edgewater’s stockholders) or reflected through adjustment (for holders of Edgewater’s options) to the exercise price of such options, as the case may be. Payment of the special dividend will be contingent upon the closing of the transactions and will be declared at least 10 days prior to, and be paid within 10 days following, such closing. The application of the adjustment formula described above will likely result in a special dividend amount that is less than U.S.$20.5 million. Based on Edgewater’s currently expected “Net Cash” as of the closing of the transactions, the total amount of the special dividend would have been approximately U.S.$16.0 million, or approximately U.S.$1.07 for each share of Edgewater Common Stock then outstanding (applying the full dilution, in-the-money options treatment to the current basic shares outstanding), if the closing had occurred immediately following September 27, 2018. However, the actual amount of the special dividend may be either higher or lower based on Edgewater’s business, financial condition and liquidity between September 27, 2018 and the dividend declaration date.

Edgewater intends to fund payment of the special dividend to its stockholders with its available cash and borrowings under its existing revolving credit facility with Citizens Bank, N.A. Prior to the closing of the merger, pursuant to a letter which Edgewater has received from Citizens Bank, N.A., Edgewater expects to



 

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amend the facility in order to allow Edgewater to draw up to an additional U.S.$7.0 million to fund payment of the special dividend. However, such funding will be subject to certain conditions, including that the entire outstanding amount under the facility be repaid prior to or concurrently with the payment of the special dividend.

In order to repay the entire outstanding amount under Edgewater’s existing revolving credit facility prior to or concurrently with the payment of the special dividend, New Alithya intends to rely on the available cash and financing commitments of Alithya and/or New Alithya and proceeds from a private placement by Alithya prior to or contemporaneously with the closing of the transactions of up to $50 million of subscription receipts (plus up to an additional 15% of the offering amount as the underwriters’ option to purchase additional securities) that will convert into New Alithya Subordinate Voting Shares upon closing of the transactions. There is no assurance that any of these funds or financing commitments will be available to Alithya or New Alithya on acceptable terms, in a timely manner or at all. Any financing by Alithya or New Alithya would depend on favorable market conditions and the availability of financing terms that are acceptable to Alithya or New Alithya, as the case may be, and it is possible that prevailing market conditions and available terms may result in a lesser amount or no capital being raised. In the event that the conditions allowing Edgewater to draw down its existing revolving credit facility to fund the payment of the special dividend are not satisfied, Edgewater may be unable to pay the special dividend on the dividend payment date.

As consideration for the arrangement, each Alithya Common Share and each Alithya Multiple Voting Common Share then issued and outstanding will be cancelled and automatically converted into the right to receive one newly issued New Alithya Subordinate Voting Share and one newly issued New Alithya Multiple Voting Share, respectively.

For further information, see “The Arrangement Agreement—Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders” beginning on page 114.



 

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Structure of New Alithya Prior to and After the Consummation of the Transactions

The following charts illustrate New Alithya’s organizational structure prior to and after the consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions):

Pre-Transactions Structure

 

LOGO

 

 

(1) As of the date of this prospectus/proxy statement, other than New Alithya and U.S. Merger Sub, Alithya has the following wholly-owned subsidiaries:

 

Alithya Services-Conseils Inc.;

 

Alithya Digital Technology Corporation;

 

Alithya Consulting SAS;

 

Alithya Consulting USA Inc.; and

 

Pro2p Services Conseils inc.



 

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(2) As of the date of this prospectus/proxy statement, Edgewater has the following wholly-owned subsidiaries:

 

Edgewater Technology (Delaware), Inc.;

 

Edgewater Technology-Ranzal, LLC;

 

Fullscope, Inc.; and

 

Edgewater Technology—Zero2Ten, Inc.

Treatment of Outstanding Edgewater Equity Awards (Page 115)

Each option to purchase a share of Edgewater Common Stock under the Edgewater equity incentive plans, whether vested or unvested, that is outstanding immediately prior to the merger effective time will be converted, on substantially the same terms and conditions as were applicable under such option before the merger effective time, into an option to acquire New Alithya Subordinate Voting Shares equal to the number of shares subject to the Edgewater option immediately prior to the merger effective time multiplied by the exchange ratio of 1.3118, at an exercise price per share equal to the exercise price per share applicable to such option immediately prior to the merger effective time divided by the exchange ratio of 1.3118, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

Each other equity award that is outstanding immediately prior to the merger effective time under Edgewater equity incentive plans will be converted, on substantially the same terms and conditions as were applicable under such equity award before the merger effective time, into a right to receive the number of New Alithya Subordinate Voting Shares equal to the number of shares subject to such equity award immediately prior to the merger effective time multiplied by the exchange ratio of 1.3118, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

In addition, purchase rights under ongoing offerings under Edgewater’s employee stock purchase program will be converted into purchase rights to acquire New Alithya Subordinate Voting Shares on substantially the same terms and conditions as were applicable before the merger effective time.

Each of the current Edgewater equity incentive plans and the employee stock purchase program will be terminated at the merger effective time.

Treatment of Outstanding Alithya Equity Awards (Page 115)

Each option to purchase an Alithya Common Share or an Alithya Multiple Voting Common Share under the Alithya stock option plan, whether vested or unvested, that is outstanding immediately prior to the effective time will be converted, on the same terms and conditions as were applicable under such option before the arrangement effective time, into a stock option to acquire the same number of New Alithya Subordinate Voting Shares or New Alithya Multiple Voting Subordinate Voting Shares, respectively, at the same exercise price per share.

All rights of each participant under Alithya’s employee share purchase plan will be cancelled in exchange for equivalent rights under a new employee share purchase plan to be adopted by New Alithya for the purchase of New Alithya Subordinate Voting Shares or New Alithya Multiple Voting Subordinate Voting Shares.

Each of the Alithya stock option plan and employee share purchase plan will be terminated at the arrangement effective time.

Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger (Page 67)

At its meetings held on March 14, March 15 and September 10, 2018, the Edgewater board of directors unanimously approved the arrangement agreement and the transactions contemplated thereby (including the merger). The Edgewater board of directors unanimously recommends that the stockholders of Edgewater vote for the approval and adoption of the arrangement agreement and the transactions contemplated thereby (including the merger) and for the other resolutions to be considered at the Edgewater special meeting.



 

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The Edgewater board of directors considered many factors in determining to recommend the approval and adoption of the arrangement agreement and the transactions contemplated thereby (including the merger). In arriving at its determination, the board of directors consulted with Edgewater’s senior management, legal advisors, financial advisors, accounting advisors and other advisors, reviewed a significant amount of information, considered a number of factors and concluded, in the board’s business judgment, that the transactions are likely to result in significant strategic and financial benefits to Edgewater and its stockholders. For a more complete discussion of these factors, see “The Merger and the Arrangement—Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger” beginning on page 67.

In considering the recommendation of the Edgewater board of directors, you should be aware that certain executive officers and directors of Edgewater will have interests in the transactions that may be different from, or in addition to, the interests of Edgewater’s stockholders generally. See “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80.

Opinion of Edgewater’s Financial Advisor (Page 73)

William Blair & Company, L.L.C. (“William Blair”) was retained to act as the financial advisor to the Edgewater board of directors to render certain investment banking services, including soliciting offers for the possible sale of the Edgewater, which ultimately included the proposed transaction with Alithya, as set forth in the arrangement agreement. As part of its engagement, the Edgewater board of directors requested the opinion of William Blair as to the fairness, from a financial point of view, to the holders of the outstanding shares of Edgewater Common Stock, of the aggregate consideration to be received by the Edgewater stockholders pursuant to the terms and subject to the conditions set forth in the arrangement agreement. On March 15, 2018, William Blair delivered its oral opinion to the Edgewater board of directors and subsequently confirmed in writing, that, as of that date and based upon and subject to the assumptions, qualifications and limitations stated in its opinion, the aggregate consideration to be received by the Edgewater stockholders pursuant to the transactions contemplated by the arrangement agreement is fair, from a financial point of view, to Edgewater stockholders. See “The Merger and the Arrangement—Opinion of Edgewater’s Financial Advisor” beginning on page 73.

THE FULL TEXT OF WILLIAM BLAIR’S WRITTEN OPINION, DATED MARCH 15, 2018, IS ATTACHED AS ANNEX E TO THIS PROSPECTUS/PROXY STATEMENT AND INCORPORATED INTO THIS PROSPECTUS/PROXY STATEMENT BY REFERENCE. YOU ARE URGED TO READ THE ENTIRE OPINION CAREFULLY AND IN ITS ENTIRETY TO LEARN ABOUT THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY WILLIAM BLAIR IN RENDERING ITS OPINION. WILLIAM BLAIR’S OPINION WAS DIRECTED SOLELY TO THE EDGEWATER BOARD OF DIRECTORS FOR ITS USE AND BENEFIT IN EVALUATING THE FAIRNESS OF THE TRANSACTIONS CONTEMPLATED BY THE ARRANGEMENT AGREEMENT. WILLIAM BLAIR’S OPINION RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE AGGREGATE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF EDGEWATER COMMON STOCK IN THE TRANSACTIONS PURSUANT TO THE ARRANGEMENT AGREEMENT, DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTIONS, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY EDGEWATER STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE TRANSACTIONS. WILLIAM BLAIR DID NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY EDGEWATER TO ENGAGE IN THE TRANSACTIONS.



 

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The Special Meeting of Edgewater Stockholders

Date, Time & Place of the Edgewater Special Meeting

Edgewater will hold a special meeting of its stockholders on October 29, 2018, at 10:00 a.m. Eastern Time, at the offices of McDonald Hopkins LLC, 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114.

Proposals

At the special meeting, Edgewater stockholders will vote upon proposals to:

 

   

approve and adopt the arrangement agreement and transactions contemplated thereby (including the merger) (“Proposal 1”);

 

   

approve, on a non-binding advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger (“Proposal 2”); and

 

   

approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to adopt the arrangement agreement and transactions contemplated thereby (including the merger) (“Proposal 3”).

Record Date; Outstanding Shares; Shares Entitled to Vote

Only stockholders of record of Edgewater at the close of business on September 28, 2018 will be entitled to vote at the special meeting. On the record date, there were 14,611,571 shares of Edgewater Common Stock outstanding and entitled to vote. Each share of Edgewater Common Stock outstanding as of September 28, 2018 is entitled to one vote on each proposal and any other matter properly coming before the special meeting.

Stock Ownership and Voting by Edgewater’s Directors and Officers

As of September 27, 2018, the last practicable day before the date of this prospectus/proxy statement, Edgewater’s executive officers and directors, together with the stockholders with which certain of Edgewater’s directors are affiliated or associated, had the right to vote approximately 2.3 million shares of Edgewater Common Stock, representing approximately 15.9% of the total shares of Edgewater Common Stock then outstanding and entitled to vote at the special meeting. Edgewater expects that its executive officers and directors, and the stockholders with which certain of Edgewater’s directors are affiliated or associated, will vote “FOR” each of the proposals described above.

Vote Required

 

   

Proposal 1: The proposal to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger) must receive a “FOR” vote from the holders of at least a majority of the shares of Edgewater Common Stock outstanding on the record date for the special meeting.

 

   

Proposal 2: The proposal to approve, on an advisory basis, certain compensatory arrangements between Edgewater and its named executive officers relating to the merger must receive a “FOR” vote from at least a majority of the shares of Edgewater Common Stock represented either in person or by proxy at the special meeting and entitled to vote, although such vote will not be binding on Edgewater.

 

   

Proposal 3: The proposal to approve the adjournment of the special meeting, or any adjournment thereof, to another time or place, if necessary or appropriate to solicit additional proxies if there are not



 

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sufficient votes at the time of the special meeting to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger), must receive a “FOR” vote from at least a majority of the shares of Edgewater Common Stock represented either in person or by proxy at the special meeting and entitled to vote.

The Edgewater board of directors recommends that Edgewater stockholders vote “FOR” each of the proposals set forth above.

Interests of Certain Persons in the Merger (Page 80)

Alithya

Certain current executive officers and non-employee directors of Alithya will become the executive officers and non-employee directors, respectively, of New Alithya. See “Information about New Alithya—Directors and Senior Management of New Alithya” beginning on page 199. As a result, these Alithya executive officers and non-employee directors may enter into new employment, equity compensation or other agreements with New Alithya for services to be provided following the completion of the transactions. As of the date of this prospectus/proxy statement, no such agreements have been entered into. The completion of the transactions is not conditioned upon any executive officer or non-employee director of Alithya entering into any such agreement.

Edgewater

In considering the recommendation of the Edgewater board of directors with respect to the arrangement agreement and the transactions contemplated thereby (including the merger), Edgewater stockholders should be aware that, in addition to their respective rights to receive the special cash dividend and New Alithya Subordinate Voting Shares on the same terms as are available to other Edgewater stockholders, certain executive officers and directors of Edgewater have certain interests in the transactions that may be different from, or in addition to, the interests of Edgewater stockholders generally. The Edgewater board of directors was aware of these interests and considered them, among other matters, in approving the arrangement agreement and the transactions contemplated thereby and making its recommendation that the Edgewater stockholders approve the arrangement agreement and the transactions contemplated thereby. These interests are described in “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80.

Directors and Senior Management of New Alithya (Page 199)

Upon completion of the transactions, the board of directors of New Alithya will consist of nine directors, among which six will be nominated by Alithya, including Robert Comeau, François Côté, Paul Raymond, Ghyslain Rivard, Pierre Turcotte and Dana Ungar (Ades-Landy), and three will be nominated by Edgewater, including Frederick DiSanto, Jeffrey Rutherford and C. Lee Thomas. The chairman of the board of directors will be nominated by Alithya. Until the date that is 12 months following closing of the transactions, New Alithya will (i) nominate the three directors being initially nominated by Edgewater as provided above at any annual or special shareholders’ meeting of New Alithya to be held within such 12-month period, (ii) recommend that shareholders of New Alithya vote in favor of their election at any such meeting, and (iii) not take any step to remove those directors from its board of directors, provided in all cases that the covenant will not be applicable in the case of fraud, gross negligence or willful misconduct of the relevant director.

In addition, upon completion of the transactions, Paul Raymond, the current President and Chief Executive Officer of Alithya, Claude Thibault, the current Senior Vice President and Chief Financial Officer of Alithya, Claude Rousseau, the current Senior Vice President and Chief Operating Officer of Alithya, and Russell Smith, the current President of Edgewater Fullscope, a subsidiary of Edgewater, will be appointed, respectively, as the President and Chief Executive Officer, the Senior Vice President and Chief Financial Officer, the Senior Vice President and Chief Operating Officer and the Leader, U.S.A. of New Alithya.



 

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See “Information about New Alithya—Directors and Senior Management of New Alithya” beginning on page 199.

Certain Tax Consequences of the Merger and the Arrangement (Page 90)

Certain U.S. Federal Income Tax Considerations

Tax residence of New Alithya for U.S. federal income tax purposes

Under current U.S. federal income tax law, a corporation generally will be considered to be resident for U.S. federal income tax purposes in its place of organization or incorporation. Accordingly, under the generally applicable U.S. federal income tax rules, New Alithya, which is a Québec-incorporated entity, would generally be classified as a non-U.S. corporation (and, therefore, not a U.S. tax resident). Section 7874 of the Code and the regulations promulgated thereunder, however, contain specific rules that may cause a non-U.S. corporation to be treated as a U.S. corporation for U.S. federal income tax purposes. Alithya and Edgewater do not expect Section 7874 to apply to treat New Alithya as a U.S. corporation for these purposes but there can be no assurance that the IRS will not challenge this position. If, contrary to the expectation of the parties, it were to be determined that New Alithya should be taxed as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code, New Alithya could be liable for substantial U.S. federal income tax and certain distributions made by New Alithya to non-U.S. holders of New Alithya Shares would be subject to U.S. withholding tax.

As more fully described under “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group—Tax Residence of New Alithya for U.S. Federal Income Tax Purposes” beginning on page 92, Section 7874 is currently expected to apply in a manner such that New Alithya should not be treated as a U.S. corporation for U.S. federal income tax purposes. However, holders are cautioned that the application of Section 7874 to the New Alithya Group will be determined as of the closing of the merger and arrangement, by which time there could be adverse changes to the relevant facts and circumstances. In addition, there could be a future change in law under Section 7874 of the Code, the Treasury Regulations promulgated thereunder or otherwise that could have an adverse effect on the determination of whether Section 7874 applies to New Alithya. No opinion of counsel or Internal Revenue Service (“IRS”) ruling has been requested or will be obtained regarding the U.S. federal income tax consequences of the merger or the arrangement or any other matter described in this prospectus/proxy statement. As a result, there can be no assurance that the IRS will not challenge the U.S. federal income tax treatment described above or that, if challenged, such treatment will be sustained by a court.

Regardless of the application of Section 7874 of the Code, New Alithya is expected to be treated as a Québec, Canada resident company for Canadian tax purposes because New Alithya is incorporated under Québec law and is intending to have its place of central management and control (as determined for Canadian tax purposes) in Québec, Canada.

The summary above is qualified in its entirety by the more detailed discussion provided in the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group” beginning on page 92.

U.S. federal income tax consequences of the merger and arrangement to Edgewater

Edgewater will not be subject to U.S. federal income tax on the merger; however, Edgewater will continue to be subject to U.S. tax after the merger. In certain circumstances, Edgewater (and its U.S. affiliates) may be subject to limitations on the utilization of certain tax attributes, as described under “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group—Potential Limitation on the Utilization of Edgewater’s (and Its U.S. Affiliates’) Tax Attributes” beginning on page 94.



 

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U.S. federal income tax consequences of the merger and arrangement to Edgewater stockholders that are U.S. Holders

The parties expect that U.S. holders of Edgewater Common Stock will be subject to U.S. federal income taxation in connection with the merger and arrangement. As described more fully under the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations,” the parties intend for the merger and the arrangement collectively to qualify as a transfer described in Section 351 of the Code. In addition, although the treatment of the special dividend is subject to uncertainty, the parties expect to take the position that the special dividend is treated, for U.S. federal income tax purposes, as consideration received by former stockholders of Edgewater in exchange for Edgewater Common Stock as part of the merger and the arrangement and not as a separate pre-merger distribution by Edgewater. The treatment of the special dividend as consideration received by holders of Edgewater Common Stock as part of the merger and arrangement, as opposed to a separate pre-closing distribution by Edgewater, may have an adverse effect on the U.S. federal income tax treatment of the merger and arrangement to a U.S. holder, depending on such holder’s particular circumstances.

If the special dividend is treated as consideration received as part of the merger and arrangement, then, subject to certain qualifications discussed under the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. Holders”, U.S. holders of Edgewater Common Stock are expected to be subject to the following U.S. federal income tax treatment in connection with the merger and arrangement:

 

   

a U.S. holder will recognize gain, but not loss, in an amount equal to the lesser of (1) the excess of the sum of (i) the fair market value of New Alithya Subordinate Voting Shares received, and (ii) cash received pursuant to the special dividend, over such U.S. holder’s tax basis in Edgewater Common Stock surrendered, and (2) the amount of cash received pursuant to the special dividend by such holder;

 

   

the U.S. holder’s aggregate tax basis of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will be the same as the aggregate tax basis of the shares of Edgewater Common Stock surrendered in exchange therefor, decreased by the amount of cash received pursuant to the special dividend, and increased by the amount of gain recognized on the exchange; and

 

   

the U.S. holder’s holding period of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will include the holding period of the Edgewater Common Stock surrendered therefor.

U.S. holders are cautioned, however, that if Section 367(a) of the Code applies to the merger and arrangement, a U.S. holder would be required to recognize gain, if any (but not loss), on the disposition of Edgewater Common Stock in an amount equal to the excess of (i) the sum of the fair market value of New Alithya Subordinate Voting Shares and special dividend received by such holder, over (ii) the holder’s adjusted tax basis in the shares of Edgewater Common Stock surrendered. This may result in a U.S. holder of Edgewater Common Stock recognizing a greater amount of gain for U.S. federal income tax purposes than such holder would have recognized if Section 367(a) of the Code did not apply.

The characterization of the transactions contemplated in the arrangement agreement is subject to uncertainty and U.S. holders are cautioned that the application of certain rules, including the potential application of Section 367(a) of the Code, that may materially affect the U.S. federal income tax treatment of these transactions depend on factors that cannot be determined until the closing of the merger and arrangement. It is also important to note that the U.S. federal income tax consequences described above may not apply to certain Edgewater stockholders or in all circumstances. Your tax consequences will depend on your individual situation. Accordingly, U.S. holders of Edgewater Common Stock should consult with their tax advisor for a full understanding of the U.S. federal income tax consequences of the merger and arrangement having regard to such



 

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holder’s particular circumstances, as well as any tax consequences that may arise from the laws of any other taxing jurisdiction.

The summary above is qualified in its entirety by the more detailed discussion provided in the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations” beginning on page 90.

Certain Canadian Federal Income Tax Considerations

A U.S. resident holder (as defined in “Certain Tax Consequences of the Merger and the Arrangement—Certain Canadian Federal Income Tax Considerations” beginning on page 104) will not be subject to tax under the Income Tax Act (Canada) on any capital gain realized on a disposition of Edgewater Common Stock as part of the merger. On a subsequent disposition of a New Alithya Subordinate Voting Share acquired as part of the merger, a U.S. resident holder will not be subject to tax under the Tax Act on any realized capital gain, unless the New Alithya Subordinate Voting Share is “taxable Canadian property” (as defined in the Tax Act) and such capital gain is not exempt under the Canada-United States Tax Convention (1980), as amended, at the time of the disposition.

A Canadian resident holder (as defined in “Certain Tax Consequences of the Merger and the Arrangement—Certain Canadian Federal Income Tax Considerations” beginning on page 104) who acquires as beneficial owner New Alithya Subordinate Voting Shares in exchange for Edgewater Common Stock as part of the merger will generally realize a capital gain (or capital loss) equal to the amount by which the fair market value of the New Alithya Subordinate Voting Share(s) received on the merger, net of any reasonable costs of disposition, exceeds (or is less than) the adjusted cost base of the Canadian resident holder’s Edgewater Common Stock determined immediately before the disposition.

For more information, see “Certain Tax Consequences of the Merger and the Arrangement” beginning on page 90.

Delaware Appraisal Rights (Page 108)

Appraisal rights are statutory rights under Delaware law that enable shareholders who object to certain extraordinary transactions to demand that the corporation pay such shareholders the fair value of their shares instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. However, appraisal rights are not available in all circumstances. Appraisal rights will not be available to Edgewater stockholders in connection with the transactions contemplated by the arrangement agreement (including the merger).

Regulatory Approvals Required (Page 87)

The parties to the arrangement agreement have agreed to cooperate and use commercially reasonable efforts to obtain any waivers, consents, clearances and approvals required in connection with the consummation of the transactions under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other similar federal, provincial, state or foreign laws.

As of the date of this prospectus/proxy statement, Alithya and Edgewater have determined that no such waivers, consents, clearances and approvals are required in connection with the transactions. However, Alithya and Edgewater cannot assure you that government agencies or private parties will not initiate actions under applicable laws to challenge the transactions before or after they are completed. See “Risk Factors—Risks Related to the Transactions—Obtaining required approvals necessary to satisfy the conditions to the completion of the transactions may delay or prevent completion of the transactions, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the transactions” beginning on page 31.



 

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Listing of New Alithya Subordinate Voting Shares on NASDAQ and the TSX (Page 109)

It is a mutual condition to the completion of the transactions that the New Alithya Subordinate Voting Shares be approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the TSX (subject only to satisfaction of customary listing conditions). New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX.

Edgewater Common Stock will be delisted from NASDAQ and deregistered under the Exchange Act upon or as soon as practicable after the completion of the transactions, and Edgewater will no longer be required to file periodic reports with the SEC.

Conditions to the Completion of the Merger and the Arrangement (Page 133)

The completion of the transactions depends upon the satisfaction or waiver of the following conditions, among other conditions, all of which, to the extent permitted by applicable law, may be waived by Alithya and/or Edgewater, as applicable:

 

   

Alithya shareholders shall have approved the arrangement at the Alithya special meeting;

 

   

Edgewater stockholders shall have approved and adopted the arrangement agreement and the transactions contemplated thereby (including the merger) at the special meeting;

 

   

Edgewater stockholders exercising appraisal or dissent rights shall not represent more than 5% of the issued and outstanding shares of Edgewater Common Stock;

 

   

Alithya shareholders exercising dissent rights shall not represent more than 5% of the issued and outstanding shares of Alithya;

 

   

New Alithya shall have received binding agreements not to sell, without receiving New Alithya’s prior written consent, New Alithya Subordinate Voting Shares or New Alithya Multiple Voting Shares for a minimum period of 12 months following the closing from: Ancora Advisors, LLC, the directors and officers of Alithya and Edgewater remaining with the post-closing operations of New Alithya, Alithya shareholders receiving more than 5% of all of the issued and outstanding New Alithya Subordinate Voting Shares and New Alithya Multiple Voting Shares, taken as a whole, at closing, and those employees or other persons as otherwise agreed upon between Alithya and Edgewater;

 

   

the Québec court shall have approved (i) the interim order calling the holding of the Alithya special meeting to consider the arrangement and (ii) the arrangement, in each case on terms acceptable to Alithya and Edgewater;

 

   

the registration statement of which this prospectus/proxy statement is a part shall be effective, and there shall not be a stop order issued by the SEC suspending the effectiveness of such registration statement or any proceedings initiated for that purpose by the SEC;

 

   

NASDAQ shall have approved for listing (subject only to official notice of issuance) and the TSX shall have conditionally approved (subject only to satisfaction of customary listing conditions) listing of the New Alithya Subordinate Voting Shares to be issued in the merger and the arrangement;

 

   

all required regulatory approvals shall have been obtained and shall remain in full force and effect and applicable waiting periods shall have expired or been terminated;

 

   

no governmental authority shall have enacted a law or order that prevents the consummation of the transactions or instituted a proceeding to prohibit consummation of the transactions;



 

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each party shall have complied in all material respects with its obligations, covenants and agreements in the arrangement agreement to be performed or complied with on or before the closing date;

 

   

the representations and warranties made by each party in the arrangement agreement shall be true and correct in all respects (disregarding all materiality or material adverse effect qualifications) as of the date of the arrangement agreement and as of the closing date (other than representations and warranties which by their terms are made as of a specific date, which will be accurate as of such date), except for breaches of representations and warranties which have not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the applicable party;

 

   

since the date of the arrangement agreement, no material adverse effect on either party shall be continuing and there shall not have occurred a result, fact, change, effect, event, circumstance, occurrence or development that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the applicable party;

 

   

each party shall have received a certificate dated the closing date and validly executed by a senior officer of the other party to the effect that certain conditions have been satisfied;

 

   

the plan of arrangement shall not have been modified or amended in a manner adverse to Edgewater without Edgewater’s consent;

 

   

the VWAP of the Edgewater Common Stock on NASDAQ for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described above shall not be less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million;

 

   

Edgewater shall have received the consent of Microsoft under certain agreements;

 

   

each party shall have satisfied its obligations and covenants in connection with its balance sheet, special dividend payment (in the case of Edgewater only) and working capital ratio set forth in the arrangement agreement;

 

   

Edgewater shall have either shut down or sold its consulting business prior to closing with no resulting severance or shutdown liabilities (which condition was satisfied through the sale by Edgewater of its consulting business on July 24, 2018);

 

   

Edgewater shall have delivered to New Alithya and Alithya a statement and notice meeting the requirements of Treasury Regulation Sections 1.1445-2(c) and 1.897-2(h), certifying that shares of Edgewater are not U.S. real property interests within the meaning of Section 897 of the Code;

 

   

the existing agreement among certain of the principal Alithya shareholders shall have been terminated and shall be of no further force and effect; and

 

   

the arrangement agreement shall not have been terminated in accordance with its terms.

Termination of the Arrangement Agreement (Page 135)

Either Alithya or Edgewater can terminate the arrangement agreement under certain circumstances, which would prevent the merger from being consummated.

Termination and Expense Fees; Effect of Termination (Page 136)

Under the arrangement agreement, Edgewater will be required to pay Alithya a termination fee of U.S.$4,000,000 if the arrangement agreement is terminated:

 

   

by Edgewater to permit Edgewater to enter into an agreement that constitutes a superior proposal (as defined in the “The Arrangement Agreement—Non-Solicitation; Third Party Acquisition Proposals” beginning on page 127);



 

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by Alithya if (A) the board of directors of Edgewater fails to unanimously and publicly recommend that the Edgewater stockholders vote to adopt the arrangement agreement or withholds, withdraws, modifies, changes or qualifies in a manner adverse to Alithya its approval of the arrangement agreement or its recommendation in connection thereto, (B) Alithya requests in writing that board of directors of Edgewater reaffirm its recommendation to the Edgewater stockholders or publicly reject any acquisition proposal for Edgewater and the board of directors of Edgewater fails to do so within three business days following receipt of such request, (C) the board of directors of Edgewater accepts, approves, endorses or recommends an acquisition proposal for Edgewater, (D) Edgewater enters into an agreement related to, or that is intended to or is reasonably expected to lead to, any acquisition proposal for Edgewater, (E) Edgewater or the board of directors of Edgewater publicly proposes or announces its intention to do any of the foregoing, or (F) Edgewater materially breaches its non-solicitation covenants under the arrangement agreement and (i) prior to such termination, an acquisition proposal for Edgewater has been made public, and (ii) within nine months following such termination, Edgewater or its subsidiaries have consummated any transaction in respect to an acquisition proposal for Edgewater or entered into an agreement expected to lead to an acquisition proposal for Edgewater; or

 

   

by Edgewater or Alithya if the board of directors of Edgewater has changed its recommendation to approve the merger.

Under the arrangement agreement, Alithya will be required to pay Edgewater a termination fee of U.S.$4,000,000 if the arrangement agreement is terminated:

 

   

by Alithya to permit Alithya to enter into an agreement that constitutes a superior proposal;

 

   

by Edgewater if (A) the board of directors of Alithya fails to unanimously and publicly recommend that the Alithya shareholders vote to adopt the arrangement agreement or withholds, withdraws, modifies, changes or qualifies in a manner adverse to Edgewater its approval of the arrangement agreement or its recommendation in connection thereto, (B) Edgewater requests in writing that board of directors of Alithya reaffirm its recommendation to the Alithya shareholders or publicly reject any acquisition proposal for Alithya and the board of directors of Alithya fails to do so within three business days following receipt of such request, (C) the board of directors of Alithya accepts, approves, endorses or recommends an acquisition proposal for Alithya, (D) Alithya enters into an agreement related to, or that is intended to or is reasonably expected to lead to, any acquisition proposal for Alithya, (E) Alithya or the board of directors of Alithya publicly proposes or announces its intention to do any of the foregoing, or (F) Alithya materially breaches its non-solicitation covenants under the arrangement agreement and (i) prior to such termination, an acquisition proposal for Alithya has been made public, and (ii) within nine months following such termination, Alithya or its subsidiaries have consummated any transaction in respect to an acquisition proposal for Alithya or entered into an agreement expected to lead to an acquisition proposal for Alithya; or

 

   

by Edgewater or Alithya if the board of directors of Alithya has changed its recommendation to approve the arrangement.

Under the arrangement agreement, Edgewater will be required to pay Alithya an expense fee of U.S.$2,000,000 if the arrangement agreement is terminated:

 

   

by Alithya if the closing of the transactions does not occur by December 15, 2018 as a result of Edgewater’s failure to fulfill any of its obligations or breach of any of its representations and warranties under the arrangement agreement being a principal cause of, or resulted in, the failure of the closing to occur by such date;

 

   

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by Alithya if Edgewater breaches any of its representations, warranties, covenants or other agreements contained in the arrangement agreement, which breach or failure would cause the conditions precedent to Edgewater’s obligations under the arrangement agreement not to be satisfied and which breach is not cured within 30 days following written notice by Alithya to Edgewater of such breach or by its nature cannot be cured within that time.

Under the arrangement agreement, Alithya will be required to pay Edgewater an expense fee of U.S.$2,000,000 if the arrangement agreement is terminated:

 

   

by Edgewater if the closing of the transactions does not occur by December 15, 2018 as a result of Alithya’s failure to fulfill any of its obligations or breach of any of its representations and warranties under the arrangement agreement being a principal cause of, or resulted in, the failure of the closing to occur by such date;

 

   

by Alithya or Edgewater if the Alithya shareholders fail to approve the arrangement; or

 

   

by Edgewater if Alithya breaches any of its representations, warranties, covenants or other agreements contained in the arrangement agreement, which breach or failure would cause the conditions precedent to Alithya’s obligations under the arrangement agreement not to be satisfied and which breach is not cured within 30 days following written notice by Edgewater to Alithya of such breach or by its nature cannot be cured within that time.

Support Agreements (Page 139)

Concurrently with the execution of the arrangement agreement, the directors and senior officers of Edgewater and Alithya and certain of their respective major shareholders (each, a “Specified Shareholder”), which together then held approximately 17% of all of the then outstanding shares of Edgewater Common Stock and approximately 79% of the voting power of all of the then outstanding Alithya Shares, entered into support agreements with Edgewater and Alithya in connection with the arrangement agreement.

Among other things, each support agreement requires that the Specified Shareholder party thereto vote or cause to be voted all of the shares of Edgewater Common Stock or Alithya Shares beneficially owned by such shareholder in favor of Proposal 1, the approval and adoption of the arrangement agreement and the transactions contemplated thereby (including the merger), and against alternative transactions.

Except in certain instances, each support agreement will terminate upon the earliest to occur of (i) the consummation of the arrangement, (ii) the termination of the arrangement agreement in accordance with its terms, (iii) a material breach by Edgewater or Alithya, as applicable, of its representations, warranties and covenants in the arrangement agreement, and (iv) with respect to each Specified Shareholder, the entry into, without the prior written consent of such shareholder, of any amendment of the arrangement agreement or other document providing for any decrease in or change in composition of the consideration to which such shareholder will be entitled to receive under the arrangement agreement, as now in effect, upon completion of the transactions.

Accounting Treatment of the Transactions (Page 89)

Following completion of the transactions, Edgewater will be a wholly-owned subsidiary of New Alithya. However, as New Alithya was formed at the time of the transactions only for issuing equity instruments to permit the combination of Alithya and Edgewater, it will not be identified as the accounting acquirer of Edgewater. Alithya will be the accounting acquirer of Edgewater since its shareholders are expected to hold a majority of voting securities of New Alithya upon completion of the transactions. Accordingly, the acquisition of Edgewater by Alithya will be accounted for using the acquisition method of accounting in accordance with IFRS with the



 

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Edgewater assets acquired and Edgewater liabilities assumed being measured at their fair values, including net tangible and identifiable intangible assets as of the closing of the transactions. Any excess of the purchase price over those fair values will be recorded as goodwill.

Restrictions on Resales under U.S. Securities Laws (Page 88)

All New Alithya Subordinate Voting Shares received by Edgewater stockholders in the merger and Alithya shareholders in the arrangement will be freely tradable, except that New Alithya Subordinate Voting Shares received in the merger or arrangement by persons who become affiliates of New Alithya for purposes of Rule 144 under the Securities Act may be resold by them only in transactions permitted by Rule 144, or as otherwise permitted under the Securities Act.

Comparison of the Rights of Holders of Edgewater Common Stock and New Alithya Subordinate Voting Shares (Page 219)

As a result of the transactions (including the merger), the holders of Edgewater Common Stock will become holders of New Alithya Subordinate Voting Shares and their rights will be governed by Québec law and the articles of incorporation or bylaws of New Alithya (the “New Alithya articles”) instead of the Delaware General Corporation Law (the “DGCL”) and Edgewater’s restated certificate of incorporation and bylaws (collectively, the “Edgewater charter documents”).

The forms of the New Alithya articles and bylaws substantially as they will be in effect from and after the effective time of the transactions are attached as Annex C and Annex D to this prospectus/proxy statement, respectively. Following the transactions contemplated thereby (including the merger), former Edgewater stockholders will have different rights as New Alithya shareholders than they did as Edgewater stockholders. For a summary of the material differences between the rights of Edgewater stockholders and New Alithya shareholders, see “Description of New Alithya Shares” beginning on page 215 and “Comparison of the Rights of Holders of Edgewater Common Stock and New Alithya Subordinate Voting Shares” beginning on page 219.

Procedures for Exchange of Edgewater Common Stock for New Alithya Subordinate Voting Shares (Page 89)

At the effective time, New Alithya will deposit certificates, or at New Alithya’s option, evidence of shares in book-entry form, representing the total number of New Alithya Subordinate Voting Shares deliverable to the Edgewater stockholders pursuant to the transactions. As soon as reasonably practicable (and in any event within four business days) after the effective time, the exchange agent will mail each holder of record of Edgewater Common Stock a letter of transmittal and instructions for use in surrendering the Edgewater Common Stock in exchange for the New Alithya Subordinate Voting Shares owed to such holder pursuant to the transactions. See “The Arrangement Agreement—Exchange of Edgewater Stock Certificates Following the Merger and the Arrangement” beginning on page 116.

Upon surrender of Edgewater Common Stock for cancellation to the exchange agent, together with a duly executed letter of transmittal and any other documents reasonably required by the exchange agent, the holder of such Edgewater Common Stock is entitled to receive in exchange that number of New Alithya Subordinate Voting Shares into which such holder’s Edgewater Common Stock were converted pursuant to the terms of the arrangement agreement (see “The Arrangement Agreement—Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders” beginning on page 114). The properly surrendered Edgewater Common Stock will be cancelled.



 

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RISK FACTORS

Edgewater stockholders should carefully consider the following factors in evaluating whether to vote to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger). These factors should be considered in conjunction with the other information included in or incorporated by reference into this prospectus/proxy statement, including the risks discussed in Edgewater’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 under the heading “Risk Factors.” See “Where You Can Find More Information” beginning on page 236.

Risks Related to the Transactions

The number of New Alithya Subordinate Voting Shares that Edgewater stockholders will receive as consideration for the merger may be adjusted to reflect changes in the market value of Edgewater Common Stock.

As consideration for the merger, each share of Edgewater Common Stock then issued and outstanding will be cancelled and automatically converted into the right to receive 1.3118 newly issued New Alithya Subordinate Voting Shares. However, Alithya has a termination right if the VWAP of the Edgewater Common Stock on NASDAQ for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million. Changes in the share price of Edgewater Common Stock may result from a variety of factors, including changes in the business, operations or prospects of Edgewater, market assessments of the likelihood that the transactions will be completed, the timing of the transactions, regulatory considerations, general market and economic conditions and other factors. Edgewater stockholders are urged to obtain current market quotations for Edgewater Common Stock.

The special dividend that Edgewater stockholders will receive in connection with the consummation of the merger may be adjusted to reflect changes in the financial position of Edgewater and its payment to the Edgewater stockholders is subject to certain funding conditions.

In addition to the right of Edgewater stockholders to receive New Alithya Subordinate Voting Shares in the transactions, Edgewater will declare to Edgewater stockholders and option holders of record immediately prior to the anticipated closing date of the transactions a special dividend equal to U.S.$20.5 million, subject to adjustment. The dividend will be payable either in cash (for Edgewater’s stockholders) or reflected through adjustment (for holders of Edgewater’s options) to the exercise price of such options, as the case may be. The total amount of the dividend will proportionately increase or decrease to the extent that Edgewater’s “Net Cash” (as defined in the arrangement agreement) is then greater or less than U.S.$8.5 million, as the case may be. Payment of the special dividend will be contingent upon the closing of the transactions and will be declared at least 10 days prior to, and be paid within 10 days following, such closing. The application of the adjustment formula described above will likely result in a special dividend amount that is less than U.S.$20.5 million. Based on Edgewater’s currently expected “Net Cash” as of the closing of the transactions, the total amount of the special dividend would have been approximately U.S.$16.0 million, or approximately U.S.$1.07 for each share of Edgewater Common Stock then outstanding (applying the full dilution, in-the-money options treatment to the current basic shares outstanding), if the closing had occurred immediately following September 27, 2018. However, the actual amount of the special dividend may be either higher or lower based on Edgewater’s business, financial condition and liquidity between September 27, 2018 and the dividend declaration date.

Edgewater intends to fund payment of the special dividend to its stockholders with its available cash and borrowings under its existing revolving credit facility with Citizens Bank, N.A. Prior to the closing of the merger, pursuant to a letter which Edgewater has received from Citizens Bank, N.A., Edgewater expects to amend the facility in order to allow Edgewater to draw up to an additional U.S.$7.0 million to fund payment of the special dividend. However, such funding will be subject to certain conditions, including that the entire outstanding amount under the facility be repaid prior to or concurrently with the payment of the special dividend.

 

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In order to repay the entire outstanding amount under Edgewater’s existing revolving credit facility prior to or concurrently with the payment of the special dividend, New Alithya intends to rely on the available cash and financing commitments of Alithya and/or New Alithya and, to the extent necessary, proceeds from a private placement by Alithya prior to or contemporaneously with the closing of the transactions of up to $50 million of subscription receipts (plus up to an additional 15% of the offering amount as the underwriters’ option to purchase additional securities) that will convert into New Alithya Subordinate Voting Shares upon closing of the transactions. There is no assurance that any of these funds or financing commitments will be available to Alithya or New Alithya on acceptable terms, in a timely manner or at all. Any financing by Alithya or New Alithya would depend on favorable market conditions and the availability of financing terms that are acceptable to Alithya or New Alithya, as the case may be, and it is possible that prevailing market conditions and available terms may result in a lesser amount or no capital being raised. In the event that the conditions allowing Edgewater to draw down its existing revolving credit facility to fund the payment of the special dividend are not satisfied, Edgewater may be unable to pay the special dividend on the dividend payment date.

Failure to consummate the transactions could negatively impact the stock price and the future business and financial results of Edgewater.

If the transactions are not consummated, the ongoing business of Edgewater may be materially and adversely affected and, without realizing any of the benefits of having consummated the transactions, Edgewater will be subject to a number of risks, including the following:

 

   

Edgewater may be required to reimburse Alithya for certain expenses incurred by Alithya in connection with the transactions, as described in the arrangement agreement and summarized under the caption “The Arrangement Agreement—Expenses” beginning on page 137;

 

   

Edgewater will be required to pay certain costs relating to the transactions, including legal, accounting, filing and possible other fees and mailing, financial printing and other expenses in connection with the transactions whether or not the transactions are consummated;

 

   

the current prices of Edgewater Common Stock may reflect a market assumption that the transactions will occur, meaning that a failure to complete the transactions could result in a material decline in the price of Edgewater Common Stock;

 

   

Edgewater will be required, upon a termination of the arrangement agreement under certain circumstances, to pay Alithya a termination fee of U.S.$4,000,000 or expense fee of U.S.$2,000,000, as described in the arrangement agreement and summarized under the caption “The Arrangement Agreement—Termination and Expense Fees; Effect of Termination” beginning on page 136;

 

   

matters relating to the transactions (including integration planning) have required and will continue to require substantial commitments of time and resources by Edgewater management, which could otherwise have been devoted to other opportunities that may have been beneficial to Edgewater; and

 

   

Edgewater also could be subject to litigation related to any failure to consummate the transactions or related to any enforcement proceeding commenced against Edgewater to perform its obligations under the arrangement agreement.

If the transactions are not consummated, these risks may materialize and may materially and adversely affect Edgewater’s business, financial results and stock price.

Edgewater’s business relationships, including customer relationships, may be subject to disruption due to uncertainty associated with the transactions.

Parties with which Edgewater currently does business or may do business in the future, including customers and suppliers, may experience uncertainty associated with the transactions, including with respect to current or future business relationships with Edgewater or New Alithya. As a result, Edgewater’s business relationships

 

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may be subject to disruptions if customers, suppliers and others attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Edgewater. These disruptions could have a material and adverse effect on the business, financial condition, results of operations or prospects of New Alithya following the closing. The effect of such disruptions could be exacerbated by a delay in the consummation of the transactions or termination of the arrangement agreement.

Obtaining required approvals necessary to satisfy the conditions to the completion of the transactions may delay or prevent completion of the transactions, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the transactions.

The transactions are subject to closing conditions. These closing conditions include, among others, the receipt of required approvals of Edgewater stockholders and Alithya shareholders, approval of the arrangement by the Québec court, the continued effectiveness of the registration statement of which this prospectus/proxy statement is a part and receipt of consents or waivers in connection with the transactions from third parties under certain agreements, including agreements between Edgewater and Microsoft.

In addition, the parties to the arrangement agreement have agreed to cooperate and use commercially reasonable efforts to obtain waivers, consents, clearances and approvals, if any, required in connection with the consummation of the transactions under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other similar federal, provincial, state or foreign laws. As of the date of this prospectus/proxy statement, Alithya and Edgewater have determined that no such waivers, consents, clearances and approvals are required in connection with the transactions. However, Alithya and Edgewater cannot assure you that government agencies or private parties will not initiate actions under applicable laws to challenge the transactions before or after they are completed. If any such waivers, consents, clearances and approvals are required by governmental agencies, they may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of New Alithya’s business after the closing. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the transactions or may reduce the anticipated benefits of the transactions. If Edgewater and Alithya agree to any material requirements, limitations, costs or restrictions in order to obtain any approvals required to consummate the transactions, these requirements, limitations, costs or restrictions could materially and adversely affect the anticipated benefits of the transactions. This could result in a failure to consummate these transactions or have a material adverse effect on New Alithya’s business and results of operations.

No assurance can be given that the required Edgewater stockholder approval and Alithya shareholder approval will be obtained or that the required closing conditions will be satisfied, and, even if all required waivers, consents and approvals are obtained and the closing conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals. See “The Arrangement Agreement—Conditions to the Completion of the Merger and the Arrangement” beginning on page 133 for a discussion of the conditions to the completion of the transactions.

Edgewater may waive one or more of the conditions to the merger without resoliciting stockholder approval.

Edgewater may determine to waive, in whole or in part, one or more of the conditions to its obligations to complete the merger to the extent permitted by applicable laws. Edgewater will evaluate the materiality of any such waiver and its effect on its stockholders in light of the facts and circumstances at the time to determine whether any amendment of this prospectus/proxy statement and resolicitation of proxies would be required or warranted. In some cases, if Edgewater’s board of directors determines that such a waiver is warranted but that such waiver or its effect on its stockholders is not sufficiently material to warrant resolicitation of proxies, Edgewater has the discretion to complete the merger without seeking further stockholder approval. Any determination whether to waive any condition to the merger or as to resoliciting shareholder approval or amending this prospectus/proxy statement as a result of a waiver will be made by Edgewater at the time of such waiver based on the facts and circumstances as they exist at that time.

 

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Certain of Edgewater’s executive officers and directors have interests in the transactions in addition to those of other stockholders.

In considering the recommendations of the Edgewater board of directors with respect to the arrangement agreement, you should be aware that certain of Edgewater’s executive officers and directors have financial and other interests in the transactions in addition to interests they may have as stockholders. In particular, it is expected that certain members of the Edgewater board of directors and executive officers will become directors and executive officers of New Alithya, as described in “The Merger and the Arrangement—Interests of Certain Persons in the Merger” beginning on page 80. You should consider these interests in connection with your vote on the related proposal. See “Stockholder Advisory Vote on Certain Compensatory Arrangements” beginning on page 140.

As a result of the merger and arrangement, Alithya and Edgewater are expected to incur significant costs in connection with the consummation of the transactions and integration of Alithya and Edgewater into a single business, including legal, accounting, financial advisory and other costs.

Edgewater and Alithya have incurred significant legal, accounting, financial advisory and other costs, and the management teams of Edgewater and Alithya have devoted considerable time and effort in connection with the transactions. If the transactions are consummated, Alithya and Edgewater are expected to incur significant additional costs in connection with integrating their operations, products and personnel. These costs may include, among others, costs for employee redeployment, relocation or severance and integration of information systems. In addition, Alithya and Edgewater expect to incur a number of costs associated with combining the operations of the two companies, which cannot be estimated accurately at this time. Although Alithya and Edgewater expect that the elimination of duplicative costs, as well as the realization of other synergies related to the integration of the businesses, may offset incremental transaction and transaction-related costs over time, this net benefit may not be achieved in the near term, or at all.

If goodwill or other intangible assets that New Alithya records in connection with the transactions become impaired, New Alithya could have to take significant charges against earnings.

In connection with the accounting for the transactions, it is expected that New Alithya will record a goodwill and other intangible assets. Under IFRS, New Alithya must assess, at least annually and potentially more frequently, whether the value of goodwill and other indefinite-lived intangible assets has been impaired. Amortizing intangible assets will be assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings, which could materially adversely affect New Alithya’s results of operations and shareholders’ equity in future periods.

Existing Edgewater stockholders will have less influence on New Alithya’s management and policies following completion of the transactions than they now have on the management and policies of Edgewater.

Based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 42% and 58% of the total number of New Alithya Shares on a fully-diluted basis, respectively. However, because New Alithya Multiple Voting Shares will be issued only to those Alithya shareholders which now hold Alithya Multiple Voting Common Shares, the former stockholders of Edgewater and the former shareholders of Alithya are expected to, upon consummation of the transactions, own approximately 18% and 82% of the total voting power of the New Alithya Shares, respectively. As a result, existing Edgewater stockholders will have less influence on New Alithya’s management and policies following completion of the transactions than they now have on the management and policies of Edgewater.

 

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Until the completion of the transactions or the termination of the arrangement agreement in accordance with its terms, each of Edgewater and Alithya is prohibited from entering into certain transactions that might otherwise be beneficial to Edgewater, Edgewater’s stockholders, Alithya and/or Alithya’s shareholders.

During the period that the arrangement agreement is in effect, other than with the other party’s written consent, each of Edgewater and Alithya is subject to certain restrictions. See “The Arrangement Agreement—Additional Agreements” beginning on page 130. For example, without Alithya’s written consent, Edgewater is prohibited from making any acquisition that would be reasonably likely to prevent the transactions from occurring. The foregoing prohibition could have the effect of delaying other strategic transactions and may, in some cases, make it impossible to pursue other strategic transactions that are available only for a limited time.

Edgewater and Alithya have entered into support agreements with certain Edgewater stockholders and Alithya shareholders who owned in the aggregate approximately 17% of the outstanding shares of Edgewater Common Stock and approximately 79% of the voting power of all of the outstanding Alithya Shares as of the date of the arrangement agreement, and termination of the support agreements could result in significantly decreased support for the transactions.

The support agreements may be terminated upon the earliest to occur of, among other things, (i) a material breach by Edgewater or Alithya, as appropriate, of its representations, warranties and covenants in the arrangement agreement and (iii) the entry into, without the prior written consent of such stockholders, of any amendment of the arrangement agreement or other document providing for any decrease in or change in composition of the consideration to which such stockholders will be entitled to receive under the arrangement agreement upon completion of the transactions.

Edgewater stockholders will not be entitled to appraisal rights in the merger.

Appraisal rights are statutory rights under Delaware law that enable shareholders who object to certain extraordinary transactions to demand that the corporation pay such shareholders the fair value of their shares instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. However, appraisal rights are not available in all circumstances. Appraisal rights will not be available to Edgewater stockholders in connection with the transactions contemplated by the arrangement agreement (including the merger).

Risks Related to Alithya

The pendency of the transactions could adversely affect Alithya’s business and operations.

In connection with the transactions, some of Alithya’s customers or vendors may delay or defer decisions, which could negatively affect Alithya’s revenues, earnings, cash flows and expenses, regardless of whether the transactions are completed. Similarly, Alithya’s current and prospective employees may experience uncertainty about their future roles with New Alithya, which may materially adversely affect Alithya’s ability to attract, retain and motivate key personnel during the pendency of the transactions and which may materially adversely divert attention from the daily activities of its existing employees. In addition, due to operating covenants in the arrangement agreement, Alithya may be unable, during the pendency of the transactions, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions that are not in the ordinary course of business, even if such actions would prove beneficial to Alithya. Further, the process of seeking to accomplish the transactions could also divert the focus of Alithya’s management from pursuing other opportunities that could be beneficial to it, without realizing any of the benefits which might have resulted had the transactions been completed.

 

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Failure to consummate the transactions could negatively impact the future business and financial results of Alithya.

If the transactions are not consummated, the ongoing business of Alithya may be materially and adversely affected and, without realizing any of the benefits of having consummated the transactions, Alithya will be subject to a number of risks, including the following:

 

   

Alithya may be required to reimburse Edgewater for certain expenses incurred by Edgewater in connection with the transactions, as described in the arrangement agreement and summarized under the caption “The Arrangement Agreement—Expenses” beginning on page 137;

 

   

Alithya will be required to pay certain costs relating to the transactions, including legal, accounting, filing and possible other fees and mailing, financial printing and other expenses in connection with the transactions, whether or not the transactions are consummated;

 

   

Alithya will be required, upon a termination of the arrangement agreement under certain circumstances, to pay Edgewater a termination fee of U.S.$4,000,000 or an expense fee of U.S.$2,000,000, as described in the arrangement agreement and summarized under the caption “The Arrangement Agreement—Termination and Expense Fees; Effect of Termination” beginning on page 136;

 

   

matters relating to the transactions (including integration planning) have required and will continue to require substantial commitments of time and resources by Alithya management, which could otherwise have been devoted to other opportunities that may have been beneficial to Alithya; and

 

   

Alithya also could be subject to litigation related to any failure to consummate the transactions or related to any enforcement proceeding commenced against Alithya to perform its obligations under the arrangement agreement.

If the transactions are not consummated, these risks may materialize and may materially and adversely affect Alithya’s business and financial results.

Alithya relies on highly-trained and experienced personnel.

Alithya’s future success depends in large part on its ability to attract new qualified employees and retain existing highly-trained and experienced technical consultants, project management consultants, business analysts and sales and marketing professionals of various experience levels. The markets that Alithya serves are highly competitive and competition for skilled employees in the technology consulting industry is intense. If Alithya fails to attract new employees or retain its existing employees, Alithya may be unable to complete existing projects or bid for new projects of similar size, which could adversely affect its revenues. While attracting and retaining experienced employees is critical to Alithya’s business and growth strategy, maintaining its current employee base may be difficult. Even if Alithya is able to grow and expand its employee base, the additional resources required to attract new employees and retain existing employees may adversely affect its operating margins.

Alithya may be adversely affected by material changes with its major customers.

Alithya’s business could be adversely affected by material changes to its strategic relationship with its major customers. The business generated from three customers represented more than 53% of Alithya’s revenue for the fiscal year ended March 31, 2017 and the business generated from two customers represented more than 43% of Alithya’s revenue for the fiscal year ended March 31, 2018. A failure to renew these contractual relationships, or a material modification or change in a customer’s approach or its contract terms, for any reason, could have a material adverse impact on Alithya’s results of operations.

 

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Alithya’s business could be adversely affected by a significant or prolonged economic downturn.

Alithya’s results of operations are affected by the level of business activity of its customers, which in turn is affected by the level of economic activity in the industries and markets that they serve. A decline in the level of business activity of Alithya’s customers could continue to have a material adverse effect on its revenue and profit margin. Future economic conditions could cause some customers to reduce or defer their expenditures for consulting services. Alithya has implemented and will continue to implement cost-savings initiatives to manage its expenses as a percentage of revenue. However, current and future cost-management initiatives may not be sufficient to avoid reductions in Alithya’s margins if the economic environment should weaken for a prolonged period.

Alithya’s business, results of operations and financial condition will suffer if it fails to enhance its existing services and solutions and to develop new services and solutions that allow Alithya to keep pace with rapidly evolving technological developments, including the demand for digital technologies and services.

The markets for technology, digital and outsourcing services are characterized by rapid technological change, evolving industry standards, changing customer preferences and new product and service introductions. Alithya is currently in the midst of a shift towards increasing customer demand for digital technologies and services. Alithya’s future success will depend on its ability to develop digital and other services and solutions that keep pace with changes in the markets in which it operates. Alithya may not be successful in developing digital and other new services and solutions addressing evolving technologies in a timely or cost-effective manner or that any services and solutions it does develop will be successful in the marketplace. Alithya’s failure to address the demands of the rapidly evolving technological environment could have a material adverse effect on its ability to retain and attract customers and on its competitive position, which could in turn have a material adverse effect on its business, results of operations and financial condition.

System failures, system outages or operational disruptions in Alithya’s communications or IT systems and infrastructure could negatively impact its operations and ability to provide its services and solutions, which would have an adverse effect on its business, results of operations and financial condition.

To deliver its services and solutions to its customers, Alithya relies upon high speed networks, including satellite, fiber optic and land lines operated by third parties, to provide active voice and data communications 24 hours per day between its main operating offices, other global delivery centers and the offices of its customers and associates worldwide. Any systems failure or outage or a significant disruption in such communications or in Alithya’s information technology (“IT”) systems and infrastructure could result in curtailed operations, a loss of customers and reputational damage, which would have an adverse effect on Alithya’s business, results of operations and financial condition.

Alithya has a history of net losses, and it may not achieve or maintain profitability in the future.

Alithya generated a net loss of $2.9 million and $7.2 million for the fiscal years ended March 31, 2017 and 2018, respectively. Alithya intends to continue to expend significant funds to increase its capability to win new contracts, expand and improve its existing operations and make additional acquisitions. As it continues to grow, Alithya expects the aggregate amount of these expenses will also continue to grow. Alithya’s efforts to grow its business may be more costly than it expects and it may not be able to increase its revenue enough to offset higher operating expenses. Alithya may incur significant losses in the future for a number of reasons, including as a result of unforeseen expenses, difficulties, complications and delays, the other risks described in this prospectus/proxy statement and other unknown events. The amount of future net losses will depend, in part, on the growth of Alithya’s future expenses and its ability to generate revenue. If Alithya continues to incur losses in the future, the net losses and negative cash flows incurred to date, together with any such future losses, may have an adverse effect on New Alithya shareholders’ equity and working capital.

 

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Alithya may be unable to implement its strategy of growing through acquisitions.

Alithya’s ability to grow through acquisitions requires that it identifies suitable acquisition targets and that it correctly evaluates their potential as transactions that will meet Alithya’s financial and operational objectives. There can be no assurance that Alithya will be able to identify suitable acquisition candidates and consummate additional acquisitions that meet its economic thresholds, or that future acquisitions will be successfully integrated into its operations and yield the tangible accretive value that had been expected. If Alithya is unable to implement its strategy, it will likely be unable to maintain its historic or expected growth rates.

The successful integration of new operations arising from Alithya’s acquisition strategy requires that a substantial amount of management time and attention be focused on integration tasks. Management time that is devoted to integration activities may detract from management’s normal operations focus with resulting pressure on the revenues and earnings from its existing operations. In addition, Alithya may face complex and potentially time-consuming challenges in implementing the uniform standards, controls, procedures and policies across new operations when harmonizing their activities with those of its existing business units. Integration activities can result in unanticipated operational problems, expenses and liabilities. If Alithya is not successful in executing its integration strategies in a timely and cost-effective manner, it will have difficulty achieving its growth and profitability objectives.

If Alithya does not continue to improve its operational, financial and other internal controls and systems to manage its growth and size, its business, results of operations and financial condition could be adversely affected.

Alithya’s historic and anticipated growth will continue to place significant demands on its management and other resources, and will require Alithya to continue to develop and improve its operational, financial and other internal controls. In particular, Alithya’s growth has presented and will continue to present challenges with respect to:

 

   

recruiting, training and retaining technical, finance, marketing and management personnel with the knowledge, skills and experience that its business model requires;

 

   

maintaining high levels of customer satisfaction;

 

   

developing and improving its internal administrative infrastructure, particularly its financial, operational, communications and other internal systems;

 

   

preserving its culture, values and entrepreneurial environment; and

 

   

effectively managing its personnel and operations and effectively communicating to its personnel worldwide its core values, strategies and goals.

In addition, the increasing size and scope of Alithya’s operations increase the possibility that a member of its personnel will engage in unlawful or fraudulent activity, breach its contractual obligations, or otherwise expose Alithya to unacceptable business risks, despite its efforts to train its people and maintain internal controls to prevent such instances. If Alithya does not continue to develop and implement the right processes and tools to manage its enterprise, its business, results of operations and financial condition could be adversely affected.

Alithya’s business and financial results may fluctuate.

Alithya’s ability to maintain and increase its revenue is affected not only by its success in implementing its strategy, but also by a number of other factors, which could cause Alithya’s financial results to fluctuate. These factors include:

 

   

its ability to introduce and deliver new services and business solutions;

 

   

its potential exposure to a lengthened sales cycle;

 

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the cyclicality of the purchases of its technology services; and

 

   

the nature of its client’s business (for example, if a client encounters financial difficulty, it may be forced to cancel, reduce or defer existing contracts with Alithya).

These, and other factors, make it difficult to predict financial results for any given period.

In addition, the proportion of revenues that Alithya generates from its consulting services in comparison to revenues generated from its remote delivery centers may fluctuate at times. The sources of Alithya’s revenues are affected by acquisitions or other transactions. An increased exposure to revenue from consulting service projects may result in greater quarterly revenue variations, as the revenue from consulting services does not provide long-term consistency in revenue.

Alithya may be unable to accurately estimate its tax obligations.

In estimating its income tax payable, Alithya uses accounting principles to determine income tax positions that are likely to be sustained by applicable tax authorities. However, there is no assurance that Alithya’s tax benefits or tax liability will not materially differ from its estimates or expectations. The tax legislation, regulation and interpretation that apply to Alithya’s operations are continually changing. In addition, future tax benefits and liabilities are dependent on factors that are inherently uncertain and subject to change, including future earnings, future tax rates, and anticipated business mix in the various jurisdictions in which Alithya operates. Moreover, Alithya’s tax returns are continually subject to review by applicable tax authorities. These tax authorities determine the actual amounts of taxes payable or receivable, of any future tax benefits or liabilities and of income tax expense that Alithya may ultimately recognize. Such determinations may become final and binding on Alithya.

Any of the aforementioned factors could have a material adverse effect on Alithya’s net income or cash flow by affecting its operations and profitability, the availability of tax credits, the cost of the services it provides, and the availability of deductions for operating losses as it develops its international service delivery capabilities.

Benefits received by Alithya from government sponsored programs may not be sustained.

Alithya benefits from government sponsored programs designed to support research and development, labor and economic growth in Québec, Canada. Government programs reflect government policy and depend on various political and economic factors. There can be no assurance that such government programs will continue to be available to Alithya in the future, or will not be reduced, amended or eliminated. Any future government program reductions or eliminations or other amendments to the tax credit programs could increase operating or capital expenditures incurred by Alithya and have a material adverse effect on its net earnings or cash flow.

Alithya increasingly provides complex services and solutions for its customers and, if Alithya does not satisfy customer expectations, Alithya business, results of operations and financial condition could be harmed.

The increased breadth of Alithya’s service and solution offerings has resulted and may continue to result in larger and more complex projects with its customers. This requires Alithya to establish closer relationships with its customers and achieve a thorough understanding of their operations. Alithya’s ability to establish such relationships depends on a number of factors, including the proficiency of its professionals and its management personnel. Alithya’s failure to understand its customer requirements or its failure to deliver services and solutions that meet the requirements specified by its customers could result in termination of customer contracts and potential liability for significant penalties or damages, any of which could have a material adverse effect on Alithya’s business, results of operations and financial condition.

Alithya faces early termination risk from its customers.

If Alithya fails to deliver its services according to contractual agreements, some of its clients could elect to terminate contracts before their agreed expiry date, which would result in a reduction Alithya’s earnings and cash

 

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flow and may impact the value of its backlog of orders. Early contract termination can result from the exercise of a legal right or when circumstances that are beyond its control or beyond the control of Alithya’s client prevent the contract from continuing. In cases of early termination, Alithya may not be able to eliminate ongoing costs incurred to support the contract.

Alithya may be unable to accurately estimate the costs of its services.

In order to generate acceptable margins, Alithya’s pricing for services depends on its ability to accurately estimate the costs and timing for completing projects, which can be based on a client’s bid specification, sometimes in advance of the final determination of the full scope and design of the contract. In addition, a portion of Alithya’s project-oriented contracts are performed on a fixed-price basis. Billing for fixed-price engagements is carried out in accordance with the contractual terms agreed upon with Alithya’s client, and revenue is recognized based on the percentage of effort incurred to date in relation to the total estimated efforts to be incurred over the duration of the respective contract. These estimates reflect Alithya’s best judgement regarding the efficiencies of its methodologies and professionals as it plans to apply them to the contracts in accordance with Alithya’s standards of contract management. If Alithya is unsuccessful in accurately estimating the time or resources required to fulfill its obligations under a contract, or if unexpected factors, including those outside of its control, arise, there may be an impact on costs or the delivery schedule which could have a material adverse effect on Alithya’s expected net earnings.

Alithya faces risks related to teaming agreements and subcontracts.

Alithya derives revenue from contracts where it enters into teaming agreements with other providers. In some teaming agreements, Alithya is the primary contractor, whereas in others, Alithya acts as a subcontractor. In both cases, Alithya relies upon its relationships with other providers to generate business and it expects to do so in the foreseeable future. Where Alithya acts as the primary contractor, if it fails to maintain its relationships with other providers, Alithya may have difficulty attracting suitable participants in its teaming agreements. Similarly, where it acts as subcontractor, if its relationships are impaired, other providers might reduce the work they award to Alithya, award that work to Alithya’s competitors or choose to offer the services directly to the client in order to compete with Alithya’s business. In either case, if Alithya fails to maintain its relationship with these providers or if its relationship with these providers is otherwise impaired, Alithya’s business, prospects, financial condition and operating results could be materially adversely affected.

Alithya depends on its partners’ ability to deliver on their commitments.

Increasingly large and complex contracts may require Alithya to rely upon third party subcontractors, including software and hardware vendors, to help Alithya fulfill its commitments. Under such circumstances, Alithya’s success depends on the ability of the third parties to perform their obligations within agreed upon budgets and timeframes. If Alithya’s partners fail to deliver, Alithya’s ability to complete the contract may be adversely affected, which could have an unfavorable impact on its profitability. In addition, Alithya may not be able to replace the functions provided by these third parties if their software components or products become obsolete, defective or incompatible with future versions of Alithya’s products or with Alithya’s services and solutions, or if they are not adequately maintained or updated. Third-party suppliers of software or other intellectual property assets could also be unwilling to permit Alithya to use or to continue to use their intellectual property and this could impede or disrupt use of their products or services by Alithya’s customers and Alithya.

If Alithya is unable to collect from its customers for its work, its business, results of operations and financial condition could be adversely affected.

Alithya’s business depends on its ability to successfully obtain payment from its customers for work performed. Alithya evaluates the financial condition of its customers and usually bills and collects on relatively short cycles. There is no guarantee that Alithya will accurately assess the creditworthiness of its customers.

 

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Alithya maintains allowances against trade accounts receivable and unbilled accounts receivable. Actual losses on customer balances could differ from those that Alithya currently anticipates and, as a result, Alithya might need to adjust its allowances. As at March 31, 2018, amounts owing from two customers represented, individually, more than 10% of Alithya’s total trade accounts receivables and, together, 41% of the total trade accounts receivables. The most significant single customer accounted for $8.9 million, or 26%, of accounts receivables as at March 31, 2018.

Macroeconomic conditions could also result in financial difficulties for Alithya’s customers, including limited access to the credit markets, insolvency or bankruptcy, and, as a result, could cause customers to delay payments to Alithya, request modifications to their payment arrangements that could increase Alithya’s receivables balance, or default on their payment obligations to Alithya. Timely collection of customer balances also depends on Alithya’s ability to complete its contractual commitments and bill and collect its contracted fees. If Alithya does work for a customer but is nevertheless unable to meet its contractual commitments, Alithya may not be entitled to collect for its work or may collect reduced amounts or experience delays in collection. Any delay or inability to collect from Alithya’s customers for its work may adversely affect its business, results of operations, cash flows and financial condition.

Alithya faces guarantee and indemnification risks.

In the normal course of business, Alithya enters into agreements that may provide for indemnification and guarantees to counterparties in transactions such as consulting services, business divestitures, lease agreements and financial obligations. These indemnification undertakings and guarantees may require Alithya to compensate counterparties for costs and losses incurred as a result of various events, including breaches of representations and warranties, intellectual property right infringement, claims that may arise while providing services or as a result of litigation that may be suffered by counterparties. If Alithya is required to compensate counterparties due to such arrangements, its business, prospects, financial condition and operating results could be materially adversely affected.

Alithya faces risk related to human resources utilization rates.

In order to maintain and grow revenue levels, Alithya has to maintain the appropriate availability of professional resources in each of its geographic regions by having a high utilization rate while still being able to assign additional resources to new work. Maintaining an efficient utilization rate requires Alithya to forecast its need for professional resources accurately and to manage recruitment activities, professional training programs, attrition rates and restructuring programs appropriately. To the extent that it fails to do so, or to the extent that laws and regulations, restrict its ability to do so, Alithya’s utilization rates may be reduced and thereby adversely affect its revenue and profitability. In addition, Alithya may find that it does not have sufficient resources to deploy against new business opportunities, in which case its ability to grow its revenue would suffer.

Alithya faces risks in providing services for government departments and agencies.

Changes in government spending policies or budget priorities could directly affect Alithya’s financial performance. Among the factors that could harm Alithya’s government contracting business are:

 

   

the curtailment of governments’ use of consulting and IT services firms;

 

   

a significant decline in spending by governments in general, or by specific departments or agencies in particular;

 

   

the adoption of new legislation and/or actions affecting companies that provide services to governments;

 

   

delays in the payment of its invoices by government; and

 

   

general economic and political conditions.

 

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These or other factors could cause government agencies and departments to reduce their purchases under contracts, to exercise their right to terminate contracts, to issue temporary stop work orders, or not to exercise options to renew contracts, any of which would cause Alithya to lose future revenue. Government spending reductions or budget cutbacks at these departments or agencies could materially harm Alithya’s continued performance under these contracts, or limit the awarding of additional contracts from these agencies.

Alithya faces regulatory risks.

Alithya’s operations require compliance with laws on many matters in different jurisdictions, including anti-corruption, trade restrictions, immigration, taxation, antitrust, data privacy and labor relations. Complying with these diverse requirements is a challenge and consumes significant resources. Some of these laws may impose conflicting requirements or restrictions on the repatriation of Alithya’s earnings and thereby reduce its earnings. These legal requirements may also expose Alithya to potential penalties for non-compliance and harm its reputation.

Alithya may face legal claims made against its work.

Alithya creates, implements and maintains IT solutions that are often critical to the operations of its clients’ businesses. Alithya’s ability to complete large projects as expected could be adversely affected by unanticipated delays, renegotiations, and changing client requirements or project delays. Also, Alithya’s solutions may suffer from defects that adversely affect their performance, may not meet its clients’ requirements or may fail to perform in accordance with applicable service levels. Such problems could subject Alithya to legal liability, which could materially adversely affect its business, operating results and financial condition, and may negatively affect its professional reputation. Alithya uses reasonable efforts to include provisions in its contracts which are designed to limit its exposure to legal claims relating to its services and the applications it develops. However, Alithya may not always be able to include such provisions and, where it is successful in doing so, they may not protect Alithya adequately or may not be enforceable under some circumstances or under the laws of some jurisdictions.

Alithya faces security and cybersecurity risks.

In the current environment, there are numerous and evolving security risks, especially from cybersecurity threats, including criminal hackers, hacktivists, state sponsored organizations, industrial espionage, employee misconduct, and human or technological error. Alithya’s business could be negatively impacted by these physical and cybersecurity threats, which could affect its future sales and financial position or increase its costs and expenses. These security risks to Alithya include potential attacks not only on its own products, services and systems, but also those of its clients, contractors, business partners, vendors and other third parties. Alithya seeks to detect and investigate all security incidents and to prevent their occurrence or recurrence by investing in data privacy controls, threat protections, detection and mitigation policies, procedures and controls. However, because of the evolving nature and sophistication of these security threats, Alithya may be unable to detect or prevent all of these threats. As the cybersecurity landscape evolves, Alithya may also find it necessary to make further significant investments to protect data and infrastructure. Occurrence of any of these aforementioned security threats could expose Alithya, its clients or other third parties to potential liability, litigation, and regulatory action, as well as the loss of client confidence, loss of existing or potential clients, loss of sensitive government contracts, damage to brand and reputation and other financial loss.

Alithya faces legal, reputational and financial risks from security breaches or disclosure of sensitive data or failure to comply with data protection laws and regulations.

Alithya is dependent on IT networks and systems to process, transmit, host and securely store electronic information and to communicate among its locations around the world and with its customers, suppliers and partners. Security breaches, employee malfeasance, or human or technological error could lead to shutdowns or disruptions of Alithya’s operations and potential unauthorized disclosure of sensitive data, which in turn could

 

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jeopardize projects that are critical to the operations of Alithya’s customers’ businesses. The theft and/or unauthorized use or publication of Alithya’s or its customers’ confidential information or other proprietary business information as a result of such an incident could adversely affect Alithya’s competitive position and reduce marketplace acceptance of its services. Any failure in the networks or computer systems used by Alithya or its customers could result in a claim for substantial damages against Alithya and significant reputational harm, regardless of Alithya’s responsibility for the failure.

In addition, as a global service provider with customers in a broad range of industries, Alithya often has access to or are required to manage, utilize, collect and store sensitive data subject to various regulatory regimes, including but not limited to U.S. or Canadian federal and state or provincial laws governing the protection of personal financial and health and the European Union’s General Data Protection Regulation. If unauthorized access to or disclosure of such data in Alithya’s possession or control occurs or it otherwise fails to comply with applicable laws and regulations in this regard, Alithya could be exposed to civil or criminal enforcement actions and penalties in connection with any violation of applicable data protection laws, as well as lawsuits brought by its customers, its customers’ customers, their clients or others for breaching contractual confidentiality and security provisions or data protection laws. Laws and expectations relating to data protections continue to evolve in ways that may limit Alithya’s access, use and disclosure of sensitive data, and may require increased expenditures by Alithya or may dictate that it not offer certain types of services.

Alithya may not be able to protect its intellectual property rights.

Alithya has registered, and applied for the registration of, U.S. and international trademarks, service marks, domain names and copyrights. Alithya also owns or is licensed under a number of patents, trademarks, copyrights, and licenses, which vary in duration, relating to its products and services. Existing trade secret and copyright laws afford Alithya only limited protection. Third parties may attempt to disclose, obtain or use Alithya’s products, solutions or technologies. Others may independently develop and obtain patents or copyrights for technologies that are similar or superior to Alithya’s technologies. If that happens, Alithya may need to license these technologies and it may not be able to obtain licenses on reasonable terms, if at all. If Alithya is unsuccessful in any future intellectual property litigation, it may be forced to do one or more of the following:

 

   

cease selling or using technology of services that incorporate the challenged intellectual property;

 

   

obtain a license, which may not be available on reasonable terms or at all, to use the relevant technology;

 

   

configure services to avoid infringement; and

 

   

refund license fees or other payments that it has previously received.

Generally, Alithya develops software applications for specific customer engagements. Issues relating to ownership of and rights to use software applications and frameworks can be complicated. Also, Alithya may have to pay economic damages in these disputes, which could adversely affect its results of operations and financial condition.

Alithya faces reputational risks.

Alithya’s reputation as a capable and trustworthy service provider and long-term business partner is key to its ability to compete effectively in the market for IT services. The nature of Alithya’s operations exposes it to the potential loss, unauthorized access to, or destruction of its clients’ information, as well as temporary service interruptions. Depending on the nature of the information or services, such events may have a negative impact on how Alithya is perceived in the marketplace. Under such circumstances, Alithya’s ability to obtain new clients and retain existing clients could suffer with a resulting impact on its revenue and net earnings.

Alithya faces internal controls risks.

Due to the inherent limitations of internal controls including the circumvention or overriding of controls or fraud, there can only be reasonable assurance that Alithya’s internal controls will detect and prevent a

 

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misstatement. If Alithya is unable to design, implement, monitor and maintain effective internal controls throughout its different business environments, the efficiency of its operations might suffer, resulting in a decline in revenue and profitability, and the accuracy of its financial reporting could be impaired.

Alithya faces liquidity and funding risks.

Alithya’s future growth is contingent on the execution of its business strategy, which, in turn, is dependent on its ability to grow the business organically as well as through business acquisitions. In the event Alithya would need to raise additional funds through equity or debt financing to fund any currently unidentified or unplanned future acquisitions and other growth opportunities, such financing may not be available in amounts and on terms acceptable to Alithya. Prior to or contemporaneously with the closing of the transactions, Alithya intends to raise up to $50.0 million (plus up to an additional 15% of the offering amount as the underwriters’ option to purchase additional securities) for general corporate purposes, growth opportunities and repayment of the outstanding amount under Edgewater’s existing revolving credit facility in connection with the payment of the Edgewater special dividend discussed above, through a private placement of subscription receipts that will convert into New Alithya Subordinate Voting Shares upon closing of the transactions. Alithya’s ability to raise the required funding depends on the capacity of the capital markets to meet its equity and/or debt financing needs in a timely fashion and on the basis of interest rates and/or share prices that are reasonable in the context of its commercial objectives. Increasing interest rates and the capacity of Alithya’s current lenders to meet its additional liquidity requirements are all factors that may have a material adverse effect on any acquisitions or growth activities that Alithya may, in the future, identify or plan. If Alithya is unable to obtain the necessary funding, it may be unable to achieve its growth objectives.

In addition, the continued availability of Alithya’s existing debt financing is subject to Alithya’s ability to comply with certain financial and operational covenants specified in the underlying loan agreements. Alithya was in compliance with all such covenants at March 31, 2017, but was in breach of the liquidity covenant at March 31, 2018. Alithya obtained a waiver of agreement from Fonds de Solidarité FTQ for the period starting March 31, 2018 until March 31, 2019, to modify the liquidity ratio financial covenant from 1.2:1.0 to 1.0:1.0. Subsequent to March 31, 2018, Alithya also obtained a waiver of agreement from its short-term lender, the Canadian Imperial Bank of Commerce (“CIBC”), in relation to the same financial covenant. These covenants may limit Alithya’s flexibility to pursue certain strategies or incur additional debt. If Alithya fails to meet or satisfy any of these covenants, it would be in default under these agreements and its indebtedness could be declared due and payable. In addition, Alithya’s lenders could terminate their commitments under the credit facilities. Further, any such default could make it more difficult for Alithya to obtain new financing to satisfy its liquidity requirements.

Alithya faces foreign exchange risk.

The majority of Alithya’s revenue and costs are denominated in Canadian dollars. At March 31, 2018, Alithya held net financial assets denominated in Euros of approximately €0.24 million. Euro foreign exchange fluctuations impact the results of Alithya’s operations as they are reported in Canadian dollars. This risk is partially mitigated by a natural hedge in matching Alithya’s costs with revenue denominated in the same currency. However, volatility in exchange rates could have an adverse effect on Alithya’s business, financial condition and results of operations.

Alithya faces intense competition in the IT and management consulting services market.

Competition in the IT and management consulting services market is intense and Alithya may lose projects to, or face pricing pressure from, its competitors or prospective customers’ internal IT departments. The market for IT and management consulting providers is highly competitive. In many cases, Alithya competes for specialty IT services work with in-house technical staff, and other international IT and management consulting firms. In addition, there are many small, boutique technology management consulting firms that have developed services

 

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similar to those offered by Alithya. Alithya believes that competition will continue to be strong and may increase in the future, especially if Alithya’s competitors continue to reduce their price for IT and management consulting services. Any pricing pressure could have a material adverse impact on Alithya’s revenues and margins and limit its ability to provide competitive services.

Alithya’s target market is rapidly evolving and is subject to continuous technological change. As a result, Alithya’s competitors may be better positioned to address these developments or may react more favorably to these changes, which could have a material adverse effect on Alithya’s business. Alithya competes on the basis of a number of factors, many of which may be beyond its control. Existing or future competitors may develop or offer IT and management consulting services that provide significant technological, creative, performance, price or other advantages over the services Alithya offers.

Some of Alithya’s competitors have longer operating histories and significantly greater financial, technical, marketing and managerial resources than Alithya. There are relatively low barriers to entry in Alithya’s business. Alithya currently has no patented or other proprietary technology that would preclude or inhibit competitors from entering its IT services market. Therefore, Alithya must rely on the skill of its personnel and the quality of its customer service. The costs to start an IT and management consulting services firm are relatively low. Alithya expects that it will continue to face additional competition from new entrants into the market in the future, offshore providers and larger integrators and it is subject to the risk that its employees may leave and start competing businesses. Any one or more of these factors could have a material adverse impact on Alithya’s business.

Alithya depends on certain key personnel.

Alithya depends on certain key personnel, and the loss of their services may adversely affect Alithya’s business. Alithya believes that its success depends on the continued employment of its senior management team and other key personnel. This dependence is particularly important to Alithya’s business because personal relationships are a critical element in obtaining and maintaining customer engagements. If one or more members of Alithya’s senior management team or other key personnel were unable or unwilling to continue in their present positions, Alithya’s business could be adversely affected. Furthermore, other companies seeking to develop in-house business capabilities may hire away some of Alithya’s key personnel.

Risks Related to Edgewater

Edgewater is, and will continue to be, subject to the risks described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 under the heading “Risk Factors,” which is incorporated by reference into this prospectus/proxy statement. See “Where You Can Find More Information” beginning on page 236.

Risks Related to New Alithya

The combination of the businesses currently conducted by Alithya and Edgewater will create numerous risks and uncertainties, which could adversely affect New Alithya’s operating results or prevent New Alithya from realizing the expected benefits of the merger and the arrangement.

Strategic transactions like the merger and the arrangement create numerous uncertainties and risks and require significant efforts and expenditures. Alithya will transition from a private Québec company to being part of a combined public company anticipated to be listed on NASDAQ and the TSX. This combination will entail many changes, including the integration of Edgewater and its personnel with those of Alithya, and changes in systems. These transition activities are complex, and New Alithya may encounter unexpected difficulties or incur unexpected costs, including:

 

   

the diversion of New Alithya management’s attention to integration of operations and the establishment of corporate and administrative infrastructures;

 

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difficulties in achieving anticipated business opportunities and growth prospects from combining the business of Edgewater with that of Alithya;

 

   

difficulties in the integration of operations and systems;

 

   

difficulties in the assimilation of employees and corporate cultures;

 

   

challenges in keeping existing customers and obtaining new customers; and

 

   

challenges in attracting and retaining key personnel.

If any of these factors impairs New Alithya’s ability to integrate the operations of Edgewater with those of Alithya successfully or on a timely basis, New Alithya may not be able to realize the anticipated synergies, business opportunities and growth prospects from combining the businesses. In addition, New Alithya may be required to spend additional time or money on integration that otherwise would be spent on the development and expansion of its business.

In addition, the market price of New Alithya Subordinate Voting Shares may decline following the business combination if, among other things, the integration of Alithya and Edgewater is unsuccessful, takes longer than expected or fails to achieve financial benefits to the extent anticipated by financial analysts or investors, or the effect of the business combination on the financial results of New Alithya is otherwise not consistent with the expectations of financial analysts or investors.

Alithya and Edgewater have a history of losses and, as a result, New Alithya may not be able to achieve or maintain profitability following closing of the transactions.

New Alithya currently has no assets and no operations. Upon closing of the transactions, the business of New Alithya will be the business of Alithya and Edgewater. Alithya generated a net loss of $2.9 million and $7.2 million for the fiscal years ended March 31, 2017 and 2018, respectively, and Edgewater generated a net loss of U.S.$2.8 million and U.S.$29.1 million for the fiscal years ended December 31, 2016 and December 31, 2017, respectively. Following closing of the transactions, New Alithya intends to continue to expend significant funds to increase its capability to win new contracts, expand and improve its existing operations and make additional acquisitions. As it continues to grow, New Alithya expects the aggregate amount of these expenses will also continue to grow. New Alithya’s efforts to grow its business may be more costly than it expects and it may not be able to increase its revenue enough to offset higher operating expenses. New Alithya may incur significant losses in the future for a number of reasons, including as a result of unforeseen expenses, difficulties, complication and delays, the other risks described in this prospectus/proxy statement and other unknown events. The amount of future net losses, if any, will depend, in part, on the growth of New Alithya’s future expenses and its ability to generate revenue. Any future net losses of New Alithya or its inability to maintain profitability and, positive cash flows from operating activities, among other things, may have an adverse effect on New Alithya shareholders’ equity and working capital.

Loss of key personnel could impair the integration of Alithya and Edgewater, lead to loss of customers and a decline in revenues or adversely affect the operations of New Alithya.

The success of New Alithya after the completion of the merger and the arrangement will depend, in part, upon its ability to retain key employees, especially during the integration phase of the two businesses. Current and prospective employees of Edgewater and Alithya might experience uncertainty about their future roles with New Alithya following completion of the transactions, which might materially and adversely affect Edgewater’s and New Alithya’s ability to retain key managers and other employees. In addition, competition for qualified personnel in the technology consulting industry is very intense. If Edgewater or Alithya loses key personnel or New Alithya is unable to attract, retain and motivate qualified individuals or the associated costs to New Alithya increase significantly, New Alithya’s business could be materially and adversely affected.

 

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New Alithya will be subject to the risks that are currently applicable to Alithya and Edgewater.

New Alithya will be subject to the risks that are currently applicable to Alithya and Edgewater, which are described, in the case of Alithya, under “—Risks Related to Alithya” above and, in the case of Edgewater, in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 under the heading “Risk Factors,” which is incorporated by reference into this prospectus/proxy statement. If any of these shared risks occur, New Alithya’s business, financial condition, results of operations and prospects could be adversely affected.

Growing the business of New Alithya will require the commitment of substantial resources, which could result in future losses or otherwise limit the opportunities of New Alithya.

Growing the New Alithya business over the longer-term may require commitment of continued investment in the operations of New Alithya. New Alithya’s future capital requirements will depend on many factors, including many of those discussed above, such as:

 

   

the results of New Alithya’s operations and the rate of its revenue growth;

 

   

development of new service offerings;

 

   

successful integration of Edgewater and its personnel with Alithya and its personnel;

 

   

hiring and retaining key personnel;

 

   

maintaining customer relationships; and

 

   

identification of suitable future acquisition opportunities.

New Alithya’s funds may not be sufficient to fund these activities if opportunities arise, and New Alithya may be unable to expand its business if it does not have sufficient capital or cannot borrow or raise additional capital on attractive terms.

The unaudited pro forma consolidated financial information and the unaudited prospective financial information included elsewhere in this prospectus/proxy statement may not be representative of New Alithya’s results and financial condition after the completion of the transactions.

The unaudited pro forma consolidated financial information and the unaudited prospective financial information included elsewhere in this prospectus/proxy statement have been presented for informational purposes only and are not necessarily indicative of the financial position, cash flows or results of operations that New Alithya actually would have experienced had the transactions been completed as of the dates indicated, nor are such information indicative of the future operating results or financial condition of New Alithya following the completion of the transactions. Such unaudited pro forma consolidated financial information and unaudited prospective financial information therefore do not reflect future events that may occur after the completion of the transactions.

The unaudited pro forma consolidated financial information and the unaudited prospective financial information are based on numerous variables, assumptions and/or estimates regarding the transactions that Edgewater and Alithya believe are reasonable under the circumstances, but neither Edgewater nor Alithya can assure you that the variables, assumptions and/or estimates will prove to be accurate over time. The variables, assumptions and/or estimates used in preparing such information may not prove to be accurate and other factors may affect New Alithya’s actual results and financial condition after the completion of the transactions, which may cause New Alithya’s actual results and financial condition to differ materially from the results and financial condition contemplated in the unaudited pro forma consolidated financial information and the unaudited prospective financial information.

New Alithya will face other risks.

The foregoing risks are not exhaustive, and you should be aware that, following the completion of the transactions, New Alithya will face various other risks, including those to be discussed in reports filed by New Alithya with the SEC. See “Where You Can Find More Information” beginning on page 236.

 

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Risks Related to New Alithya Subordinate Voting Shares

Holders of New Alithya Subordinate Voting Shares have limited voting rights as compared to holders of New Alithya Multiple Voting Shares.

We cannot predict the impact New Alithya’s capital structure may have on the market price of New Alithya Subordinate Voting Shares. New Alithya Multiple Voting Shares will be similar to New Alithya Subordinate Voting Shares except that each New Alithya Multiple Voting Share will have ten times the voting rights of each New Alithya Subordinate Voting Share. Because New Alithya Multiple Voting Shares will be issued only to those Alithya shareholders which now hold Alithya Multiple Voting Shares, based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 18% and 82% of the total voting power of New Alithya Shares, respectively.

In addition, Paul Raymond, the expected President, Chief Executive Officer and director of New Alithya, Pierre Turcotte, an expected director of New Alithya, and Ghyslain Rivard, an expected director of New Alithya, are expected to collectively own or have voting control over 7,863,529 New Alithya Multiple Voting Shares, representing approximately 66.9% of the total voting power of New Alithya Shares, upon closing of the transactions. Upon consummation of the transactions, Messrs. Raymond, Turcotte and Rivard also intend to enter into a voting agreement, pursuant to which Messrs. Raymond, Turcotte and Rivard will agree to, among other things, vote all of the New Alithya Shares under their control in accordance with decisions made by a majority of them, subject to certain exceptions. See “Information about New Alithya—Principal Shareholders—Voting Agreement.” As a result, holders of New Alithya Multiple Voting Shares (including Messrs. Raymond, Turcotte and Rivard) will have a disproportionate level of control over matters submitted to New Alithya shareholders for approval. This concentrated control may reduce other shareholders’ ability to influence corporate matters and, as a result, New Alithya may take actions that its other shareholders do not view as beneficial. As a result, the market price of New Alithya Subordinate Voting Shares could be adversely affected.

The market price of New Alithya Subordinate Voting Shares may be volatile, and the value of your investment could materially decline.

Edgewater stockholders and Alithya shareholders who receive New Alithya Subordinate Voting Shares in the transactions may not be able to sell their shares at or above the price at which they purchased their Edgewater Common Stock or Alithya Shares, as the case may be. The prices of Edgewater Common Stock have fluctuated materially from time to time, and New Alithya cannot predict the price of New Alithya Subordinate Voting Shares. The risk factors described above could cause the price of New Alithya Subordinate Voting Shares to fluctuate materially. In addition, the stock market in general, including the market for securities of IT consulting companies, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may materially harm the market price of New Alithya Subordinate Voting Shares, regardless of New Alithya’s operating performance. In addition, the New Alithya Subordinate Voting Share price may be dependent upon the valuations and recommendations of the analysts who cover the New Alithya business, and if New Alithya’s results do not meet the analysts’ forecasts and expectations, New Alithya’s share price could decline as a result of analysts lowering their valuations and recommendations or otherwise. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against New Alithya, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect New Alithya’s business, financial condition, results of operations and growth prospects.

Future sales of New Alithya Subordinate Voting Shares in the public market could cause volatility in the price of New Alithya Subordinate Voting Shares or cause the share price to fall.

Sales of a substantial number of New Alithya Subordinate Voting Shares in the public market, or the perception that these sales might occur, could depress the market price of New Alithya Subordinate Voting Shares, and could

 

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impair New Alithya’s ability to raise capital through the sale of additional equity securities. Subject to the terms of the 12-months lock-up agreements which they will enter into with New Alithya in connection with the closing of the transactions, the key Alithya shareholders and Edgewater stockholders, which are expected to hold approximately 57.3% of the New Alithya Shares estimated to be outstanding upon closing of the transactions, may enter into sale, hedging or other transactions with respect to the New Alithya Subordinate Voting Shares that they will receive as consideration in the transactions.

The New Alithya Subordinate Voting Shares to be received by Edgewater stockholders in connection with the merger will have different rights from the Edgewater Common Stock.

Upon consummation of the merger, Edgewater stockholders will become New Alithya shareholders and their rights as shareholders will be governed by applicable Québec laws and the New Alithya articles of incorporation and by-laws. The rights associated with Edgewater Common Stock are different from the rights associated with New Alithya Subordinate Voting Shares. See “Comparison of the Rights of Holders of Edgewater Common Stock and New Alithya Subordinate Voting Shares” beginning on page 219.

In particular, in addition to the New Alithya Subordinate Voting Shares which will be issued to the Edgewater stockholders and the current Alithya shareholders who now hold Alithya Common Shares, New Alithya will issue New Alithya Multiple Voting Shares to those Alithya shareholders which now hold Alithya Multiple Voting Common Shares. New Alithya Multiple Voting Shares will be similar to New Alithya Subordinate Voting Shares except that each New Alithya Multiple Voting Share will have ten times the voting rights of each New Alithya Subordinate Voting Share. Accordingly, based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 42% and 58% of the total number of outstanding New Alithya Shares, respectively, but the former shareholders of Edgewater and the former shareholders of Alithya are expected to hold approximately 18% and 82% of the total voting power of New Alithya Shares, respectively. However, holders of New Alithya Multiple Voting Shares will not be permitted to sell or otherwise transfer such shares, except to their respective affiliates, and any holder of New Alithya Multiple Voting Shares wishing to sell such shares in the future must first convert such shares into New Alithya Subordinate Voting Shares on a one-for-one basis. See “Description of New Alithya Shares” beginning on page 215.

Raising additional capital may adversely affect the rights of New Alithya shareholders or restrict its operations.

New Alithya may seek additional capital through a combination of public and private equity offerings and debt financings. To the extent that New Alithya raises additional capital through the sale of equity or convertible debt securities or that Alithya raises additional capital prior to the closing of the transactions (such as the proposed private placement by Alithya prior to or contemporaneously with the closing of the transactions of up to $50 million of subscription receipts (plus up to an additional 15% of the offering amount as the underwriters’ option to purchase additional securities) that will convert into New Alithya Subordinate Voting Shares upon closing of the transactions), the ownership interests of New Alithya’s shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of New Alithya shareholders. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on New Alithya’s ability to incur additional debt and other operating restrictions that could adversely impact its ability to conduct its business.

An active market for New Alithya Subordinate Voting Shares might not develop or be sustained.

If an active market for New Alithya Subordinate Voting Shares does not develop or is not sustained, holders of New Alithya Subordinate Voting Shares may be unable to sell their investments on satisfactory terms.

 

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Declines in the value of New Alithya Subordinate Voting Shares may adversely affect the liquidity of the market for New Alithya Subordinate Voting Shares. Factors unrelated to New Alithya’s performance may also have an effect on the price and liquidity of New Alithya Subordinate Voting Shares including:

 

   

extent of analyst coverage of New Alithya;

 

   

lower trading volume and general market interest in New Alithya Subordinate Voting Shares;

 

   

the size of New Alithya’s public float; and

 

   

any event resulting in a delisting of New Alithya Subordinate Voting Shares from NASDAQ or the TSX.

NASDAQ and the TSX have not conditionally approved New Alithya’s listing applications and there can be no assurance that they will do so.

New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX. Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX.

If New Alithya fails to meet applicable listing requirements, NASDAQ or the TSX may delist New Alithya Subordinate Voting Shares from trading, in which case the liquidity and market price of New Alithya Subordinate Voting Shares could decline.

New Alithya has applied to list the New Alithya Subordinate Voting Shares to be issued or reserved for issuance pursuant to the transactions on NASDAQ and the TSX, and it is a mutual condition to the closing of the transactions that the New Alithya Subordinate Voting Shares be approved for listing (subject only to official notice of issuance) on NASDAQ and the TSX shall have conditionally approved (subject only to satisfaction of customary listing conditions) listing of the New Alithya Subordinate Voting Shares on the TSX. However, there can be no assurance that the New Alithya Subordinate Voting Shares will continue to be listed on NASDAQ and the TSX in the future. If New Alithya fails to comply with the applicable listing standards and NASDAQ or the TSX delists New Alithya Subordinate Voting Shares, New Alithya and its shareholders could face significant material adverse consequences, including:    

 

   

a limited availability of market quotations for New Alithya Subordinate Voting Shares;

 

   

reduced liquidity for New Alithya Subordinate Voting Shares;

 

   

a determination that New Alithya Subordinate Voting Shares are “penny stock”, which would require brokers trading in New Alithya Subordinate Voting Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for New Alithya Subordinate Voting Shares;

 

   

a limited amount of news about New Alithya and analyst coverage of New Alithya; and

 

   

a decreased ability for New Alithya to issue additional equity securities or obtain additional equity or debt financing in the future.

New Alithya has not previously been a U.S. or Canadian reporting company.

New Alithya has not previously been a reporting company in the United States or Canada subject to U.S. or Canadian federal and state or provincial securities laws applicable to public companies, including the reporting obligations of the Exchange Act and other requirements of the Sarbanes-Oxley Act. New Alithya will be required to increase its compliance efforts and incur significant costs in connection with complying with public company requirements under U.S. and Canadian federal and state or provincial securities laws. The attention of

 

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management may be diverted on a frequent basis in order to carry out public company reporting and related obligations, rather than directing their full time and attention to the operation and growth of the business. Employees and some members of the management team have had limited or no experience working for a U.S. or Canadian reporting company, increasing the risk of non-compliance. New Alithya’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud or misconduct by persons inside or outside New Alithya. Similarly, if New Alithya fails to maintain an effective system of internal control over financial reporting, New Alithya may not be able to accurately report its financial condition, results of operations or cash flows. Non-compliance with U.S. or Canadian federal and state or provincial securities laws and other regulatory requirements could result in administrative or other penalties or civil or criminal judgments against the New Alithya or harm to New Alithya’s reputation. These consequences could affect investor confidence in New Alithya and cause the price of New Alithya Subordinate Voting Shares to decline, result in the delisting of New Alithya Subordinate Voting Shares from NASDAQ or the TSX, require the payment of fines or other amounts, distract management’s time and attention to the business or result in the loss of customer or supplier relationships, thereby reducing the value of New Alithya Subordinate Voting Shares.

New Alithya is expected to be a foreign private issuer and subject to different U.S. securities laws and regulations and corporate governance requirements than a domestic U.S. issuer.

Upon consummation of the transactions, New Alithya is expected to be a “foreign private issuer” under applicable U.S. federal securities laws because based on the number of New Alithya Shares to be issued upon consummation of the transactions, less than 50% of its voting securities are expected to be held by U.S. residents. In addition, New Alithya expects that (i) only a minority of its executive officers and directors will be U.S. citizens or residents, (ii) less than 50% of its assets will be in the United States and (iii) its business will be administered principally in Canada. Therefore, New Alithya is not expected to be required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act. As a result, New Alithya is not expected to file the same reports that a U.S. domestic issuer would file with the SEC, although it will be required to file with or furnish to the SEC the continuous disclosure documents that it will be required to file in Canada under Canadian securities laws. In addition, New Alithya’s officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. Therefore, New Alithya shareholders may not know on as timely a basis when its officers, directors and principal shareholders purchase or sell New Alithya Subordinate Voting Shares as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, New Alithya will be exempt from the proxy rules under the Exchange Act.

In addition, New Alithya will be permitted to follow certain corporate governance rules that conform to Canadian requirements in lieu of many of the NASDAQ corporate governance rules. NASDAQ Rule 5615(a)(3) provides that a foreign private issuer, such as New Alithya, may rely on home country corporate governance practices in lieu of certain of the rules in the NASDAQ Rule 5600 Series, including requirements with respect to board independence and the composition and responsibilities of board committees, a code of conduct, meetings of shareholders, review of related party transactions and shareholder approval of certain enumerated transactions, provided that New Alithya nevertheless complies with NASDAQ’s Notification of Noncompliance requirement (Rule 5625), the Voting Rights requirement (Rule 5640) and that New Alithya has an audit committee that satisfies Rule 5605(c)(3), consisting of committee members that meet the independence requirements of Rule 5605(c)(2)(A)(ii). New Alithya has not yet determined the extent to which it may elect to rely on this exemption. Accordingly, former Edgewater stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NASDAQ.

New Alithya may be exempt from certain NASDAQ corporate governance requirements if it elects to rely on the “controlled company” exemption under the NASDAQ rules.

Because of the voting agreement described in “Information about New Alithya—Principal Shareholders—Voting Agreement,” New Alithya’s principal shareholders may collectively control a majority of the voting

 

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power of New Alithya Shares upon consummation of the transactions. Under NASDAQ Rule 5615(b)(1), a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of its directors to be independent and the requirement that its compensation and nominating and corporate governance committees consist entirely of independent directors. Although New Alithya does not currently intend to rely on the “controlled company” exemption under the NASDAQ rules, it could elect to rely on this exemption in the future. If New Alithya elects to rely on the “controlled company” exemption, a majority of the members of New Alithya’s board of directors might not be independent directors and its nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, while New Alithya remains a controlled company relying on the exemption and during any transition period following a time when New Alithya is no longer a controlled company, New Alithya shareholders would not have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ corporate governance requirements.

New Alithya is expected to be an “emerging growth company” and exempt from the requirement to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.

Upon consummation of the transactions, New Alithya is expected to be an “emerging growth company,” as defined in the JOBS Act, and it is expected to use the exemption provided to emerging growth companies from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Therefore, New Alithya’s internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of companies that are not using an exemption. In addition, New Alithya cannot predict if investors will find the New Alithya Subordinate Voting Shares less attractive because it relies on this exemption. If some investors find the New Alithya Subordinate Voting Shares less attractive as a result, there may be a less active trading market for the New Alithya Subordinate Voting Shares and trading price for the New Alithya Subordinate Voting Shares may be negatively affected.

If New Alithya fails to maintain an effective system of internal control over financial reporting in the future, it may not be able to accurately report its financial condition, results of operations or cash flows, which may adversely affect investor confidence.

The Sarbanes-Oxley Act requires, among other things, that New Alithya maintain effective internal control over financial reporting and disclosure controls and procedures. New Alithya is required, under Section 404 of the Sarbanes-Oxley Act (“SOX 404”), to perform system and process evaluations and testing of internal controls over financial reporting to allow management to report annually (beginning with the filing of the second annual report) on the effectiveness of internal control over financial reporting. This assessment requires disclosure of any material weaknesses in New Alithya’s internal control over financial reporting identified by management. SOX 404 also generally requires an attestation from New Alithya’s independent registered public accounting firm on the effectiveness of internal control over financial reporting. However, for as long as New Alithya remains an “emerging growth company,” it intends to take advantage of the exemption permitting it not to comply with the independent registered public accounting firm attestation requirement. At the time when New Alithya is no longer an “emerging growth company,” its independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which New Alithya’s controls are documented, designed or operating. Remediation efforts may not enable New Alithya to avoid a material weakness in the future.

Compliance with SOX 404 will require the incurrence of substantial accounting expense and consume significant management efforts. New Alithya may not be able to complete evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if New Alithya identifies one or more material weaknesses in internal control over financial reporting, it will be unable to assert that its internal control over financial reporting is effective. New Alithya cannot assure you that there will not be material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure to maintain

 

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internal control over financial reporting could severely inhibit its ability to accurately report financial condition, results of operations or cash flows. If New Alithya is unable to conclude that internal control over financial reporting is effective, or if its independent registered public accounting firm determines New Alithya has a material weakness or significant deficiency in internal control over financial reporting, it could lose investor confidence in the accuracy and completeness of its financial reports, the market price of the New Alithya Subordinate Voting Shares could decline, and New Alithya could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict future access to the capital markets.

U.S. investors may be unable to enforce certain judgments against New Alithya because of its Canadian incorporation and presence.

New Alithya is incorporated under the laws of Québec. Some of New Alithya’s directors and executive officers are expected to be residents of Canada and a significant portion of its assets are expected to be located outside the United States. As a result, it may be difficult to effect service within the United States upon New Alithya or upon some of its directors and executive officers. Execution by U.S. courts of any judgment obtained against New Alithya or any of its directors or executive officers in U.S. courts may be limited to assets located in the United States. It may also be difficult for holders of securities who reside in the United States to realize in the United States upon judgments of U.S. courts predicated upon civil liability of New Alithya and its directors and executive officers under the U.S. federal securities laws. There may be doubt as to the enforceability in Canada against non-U.S. entities or their controlling persons, directors and executive officers who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon U.S. federal or state securities laws.

New Alithya does not expect to pay dividends for the foreseeable future, and you must rely on potential increases in the trading prices of the New Alithya Subordinate Voting Shares for returns on your investment.

Edgewater has never paid cash dividends on its common stock (although the arrangement agreement provides that in connection with the merger, Edgewater will pay a special dividend to its stockholders and option holders of record immediately prior to the anticipated closing date of the merger). New Alithya does not expect to pay dividends in the immediate future, and New Alithya anticipates that it will retain all earnings, if any, to support its operations. Any future determination as to the payment of dividends will, subject to Canadian legal requirements and the New Alithya articles of incorporation, be at the sole discretion of the New Alithya board of directors and will depend on New Alithya’s financial condition, results of operations, capital requirements and other factors the New Alithya board of directors deems relevant. Holders of New Alithya Subordinate Voting Shares must therefore rely on potential increases in the trading price of their shares for returns on their investment in the foreseeable future.

Risks Related to the Tax Consequences of the Merger and the Arrangement

The tax treatment of the merger and arrangement to Edgewater Stockholders is uncertain and cannot be known until the merger is completed.

For U.S. federal income tax purposes, the parties intend that the merger and the arrangement collectively qualify as a transfer described in Section 351 of the Code. In addition, due to the manner in which the special dividend is expected to be funded, there is uncertainty regarding the proper treatment of the special dividend for U.S. federal income tax purposes. Although the matter is not free from doubt, the parties expect to take the position that the special dividend is treated, for U.S. federal income tax purposes, as consideration received by former stockholders of Edgewater in exchange for Edgewater Common Stock as part of the merger and the arrangement and not as a separate pre-merger distribution by Edgewater. The treatment of the special dividend as consideration received by holders of Edgewater Common Stock as part of the merger and arrangement, as

 

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opposed to a separate pre-closing distribution by Edgewater, may have an adverse effect on the U.S. federal income tax treatment of the merger and arrangement to a U.S. holder, depending on such holder’s particular circumstances.

If the special dividend is treated as consideration received by holders of Edgewater Common Stock as part of the merger and arrangement, then, subject to certain qualifications (discussed under the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. Holders”), U.S. holders of Edgewater Common Stock are expected to be subject to the following U.S. federal income tax treatment in connection with the merger and arrangement:

 

   

a U.S. holder will recognize gain, but not loss, in an amount equal to the lesser of (1) the excess of the sum of (i) the fair market value of New Alithya Subordinate Voting Shares received, and (ii) cash received pursuant to the special dividend, over such U.S. holder’s tax basis in Edgewater Common Stock surrendered, and (2) the amount of cash received pursuant to the special dividend by such holder;

 

   

the U.S. holder’s aggregate tax basis of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will be the same as the aggregate tax basis of the shares of Edgewater Common Stock surrendered in exchange therefor, decreased by the amount of cash received pursuant to the special dividend, and increased by the amount of gain recognized on the exchange; and

 

   

the U.S. holder’s holding period of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will include the holding period of the Edgewater Common Stock surrendered therefor.

U.S. holders are cautioned, however, that if Section 367(a) of the Code applies to the merger and arrangement, a U.S. holder would be required to recognize gain, if any (but not loss), on the disposition of Edgewater Common Stock in an amount equal to the excess of (i) the sum of the fair market value of New Alithya Subordinate Voting Shares and special dividend received by such holder, over (ii) the holder’s adjusted tax basis in the shares of Edgewater Common Stock surrendered. This may result in a U.S. holder of Edgewater Common Stock recognizing a greater amount of gain for U.S. federal income tax purposes than such holder would have recognized if Section 367(a) of the Code did not apply.

U.S. Holders of Edgewater Common Stock should consult their independent tax advisors regarding the qualification of the transactions described above as a transfer described in section 351 of the Code and the treatment of the special dividend. In addition, U.S. Holders are cautioned that the potential application of Section 367(a) of the Code to the transactions described in this summary is complex and depends on factors that cannot be determined until the closing of the merger and arrangement. Accordingly, U.S. holders should consult with their independent tax advisor regarding the potential application of Section 367(a) of the Code in their particular situation, including whether they should potentially proceed on the basis that the exchange of Edgewater Common Stock pursuant to the merger and arrangement will be a fully taxable transaction for U.S. federal income tax purposes. See “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. Holders.”

The IRS may not agree with the position that New Alithya should be treated as a foreign corporation for U.S. federal income tax purposes following the transactions.

Although New Alithya will be incorporated in Canada, the IRS may assert that it should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874 of the Code. A corporation is generally considered a tax resident in the jurisdiction of its organization or incorporation for U.S. federal income tax purposes. Because New Alithya is a Québec, Canada-incorporated entity, it would generally be classified as a foreign corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874

 

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provides an exception pursuant to which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes. Alithya and Edgewater do not expect Section 7874 to apply to treat New Alithya as a U.S. corporation for these purposes but there can be no assurance that the IRS will not challenge this position. If, contrary to the expectation of the parties, it were to be determined that New Alithya should be taxed as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code, New Alithya could be liable for substantial U.S. federal income tax and certain distributions made by New Alithya to non-U.S. holders of New Alithya Shares would be subject to U.S. withholding tax.

As more fully described under “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group—Tax Residence of New Alithya for U.S. Federal Income Tax Purposes” beginning on page 92, Section 7874 is currently expected to apply in a manner such that New Alithya should not be treated as a U.S. corporation for U.S. federal income tax purposes. However, holders are cautioned that the application of Section 7874 to the New Alithya Group will be determined as of the closing of the merger and arrangement, by which time there could be adverse changes to the relevant facts and circumstances. In addition, there could be a future change in law under Section 7874 of the Code, the Treasury Regulations promulgated thereunder or otherwise that could have an adverse effect on the determination of whether Section 7874 applies to New Alithya. No opinion of counsel or IRS ruling has been requested or will be obtained from the Internal Revenue Service (the “IRS”) regarding the U.S. federal income tax consequences of the merger or the arrangement or any other matter described in this prospectus/proxy statement. As a result, there can be no assurance that the IRS will not challenge the U.S. federal income tax treatment described above or that, if challenged, such treatment will be sustained by a court.

The summary above is qualified in its entirety by the more detailed discussion provided in the section entitled “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group” beginning on page 92.

Section 7874 of the Code may limit Edgewater’s and its U.S. affiliates’ ability to utilize certain U.S. tax attributes to offset certain U.S. taxable income, if any, generated by the transactions or certain specified transactions for a period of time following the transactions.

Following the acquisition of a U.S. corporation by a foreign corporation, Section 7874 of the Code may limit the ability of the acquired U.S. corporation and its U.S. affiliates to utilize certain U.S. tax attributes, such as net operating losses, to offset U.S. taxable income resulting from certain transactions, as more fully described in “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group—Potential Limitation on the Utilization of Edgewater’s (and Its U.S. Affiliates’) Tax Attributes” beginning on page 94. In such event, Edgewater and/or its U.S. affiliates could be subject to substantial additional U.S. federal income tax on their future operations and income following the closing of the merger and arrangement.

Pursuant to the arrangement agreement, which governs the terms of the arrangement and the merger, and to complex regulations issued under Section 7874 of the Code that govern the application of the Ownership Test and the substantial business activities test (as such tests are described in “Certain Tax Consequences of the Merger and the Arrangement—Certain U.S. Federal Income Tax Considerations—Potential Application of the Inversion Rules to the New Alithya Group—Tax residence of New Alithya for U.S. federal income tax purposes—Ownership test; Substantial Business Activities Test”), New Alithya and Edgewater do not expect Edgewater to be subject to the limitations described in the paragraph above after the completion of the merger and arrangement. Holders are cautioned, however, that the determination of whether these limitations will apply must be finally determined upon the closing of the merger and arrangement, by which time there could be adverse changes to the relevant facts and circumstances. Further, a subsequent change in law might have an adverse impact on the discussion provided above, including with retroactive effect.

 

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The application of the inversion rules in Section 7874 are complex and there is limited guidance regarding their application. No opinion of counsel or IRS ruling has been sought regarding the application of these rules to the merger and arrangement. Accordingly, there can be no assurance that the IRS will not take a contrary position to those described above or that a court will not agree with a contrary position of the IRS in the event of litigation.

The arrangement and the merger are expected to result in an ownership change for Edgewater under Section 382 of the Code, potentially limiting the use of Edgewater’s net operating loss (“NOL”) carry-forwards and certain other tax attributes in future years.

As of December 31, 2017, Edgewater had approximately U.S.$14.7 million of net operating loss (“NOL”) carry-forwards available to reduce U.S. federal taxable income in future years. Under Section 382 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carry-forwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. The arrangement and the merger are expected to result in an ownership change under Section 382 of the Code for Edgewater, potentially limiting the use of Edgewater’s NOL carry-forwards in future taxable years for U.S. federal income tax purposes. These limitations may affect the timing of when these NOL carry-forwards can be used which, in turn, may impact the timing of when cash is used to pay the taxes of Edgewater and have a negative impact on Edgewater’s financial position and results of operations. In addition, Edgewater’s ability to use its NOL carry-forwards will be dependent on its ability to generate taxable income. Some portion of the NOL carry-forwards could expire before Edgewater generates sufficient taxable income for U.S. federal income tax purposes.

The effect of recent U.S. tax reform on New Alithya and Edgewater is uncertain.

On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act was enacted, which contains significant changes to U.S. tax law, including, but not limited to, a reduction in the corporate tax rate and a transition to a new territorial system of taxation. The effect of the changes made in the Tax Cuts and Jobs Act is highly uncertain, both in terms of their direct effect on the taxation of an investment in New Alithya Subordinate Voting Shares and Edgewater Common Stock and their indirect effect on New Alithya or Edgewater’s financial condition or market conditions generally. Furthermore, many of the provisions of the Tax Cuts and Jobs Act will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on New Alithya or Edgewater or their respective shareholders or stockholders, as the case may be. There may also be technical corrections legislation proposed with respect to the Tax Cuts and Jobs Act, the effect and timing of which cannot be predicted, which may be adverse to New Alithya or Edgewater or their respective shareholders or stockholders, as the case may be. New Alithya and Edgewater will continue to examine and assess the impact this tax reform legislation may have on New Alithya’s business. This prospectus/proxy statement does not discuss any such tax legislation or the manner in which it might affect Edgewater stockholders. We urge Edgewater stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in Edgewater Common Stock, and subsequent to the merger, New Alithya Subordinate Voting Shares.

Future changes to U.S. and non-U.S. tax laws could materially adversely affect New Alithya.

Under current law, New Alithya is expected to be treated as a foreign corporation for U.S. federal income tax purposes. However, changes to the rules in Section 7874 of the Code or regulations promulgated thereunder or other guidance issued by the Treasury or the IRS could adversely affect New Alithya’s status as a foreign corporation for U.S. federal income tax purposes, and any such changes could have prospective or retroactive application to New Alithya, New Alithya’s shareholders, Edgewater, Edgewater’s stockholders, their respective affiliates and/or the transactions.

 

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In addition, the U.S. Congress, the Organization for Economic Co-operation and Development and other government agencies in jurisdictions where New Alithya and its affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. Specific attention has been paid to “base erosion and profit shifting,” where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the United States and other countries in which New Alithya and its affiliates do business could change on a prospective or retroactive basis, and any such changes could materially and adversely affect New Alithya.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus/proxy statement and the documents incorporated in this prospectus/proxy statement by reference contain certain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 with respect to the respective financial conditions, results of operations, financial projections and businesses of Edgewater, Alithya and New Alithya, and the expected impact of the proposed merger and arrangement on New Alithya and its business. Statements including words such as “pro forma,” “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” “look forward,” “guidance,” and the negative of these terms or other comparable or similar terminology or expressions often identify forward-looking statements. Statements included or incorporated in this prospectus/proxy statement that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 27A of the Securities Act and Section 21E of the Exchange Act (collectively, “forward-looking statements”).

These forward-looking statements may include, without limitation, statements regarding the completion of the transactions, expected synergies and other benefits, including tax, financial and strategic benefits, to New Alithya and the respective shareholders of Edgewater and Alithya of the transactions, the expected tax consequences to holders of Edgewater Common Stock and New Alithya Subordinate Voting Shares and the expected accounting treatment for the transactions and other statements that are not historical facts. Without limiting the generality of the preceding sentence, certain information contained in the sections “The Merger and the Arrangement—Background of the Transactions,” “The Merger and the Arrangement—Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger” and “The Merger and the Arrangement—Edgewater and Alithya Unaudited Prospective Financial Information” constitute forward-looking statements.

Although each of Edgewater and Alithya believes its forward-looking statements are reasonable, they are subject to important risks and uncertainties. Those include, without limitation, the failure to receive, on a timely basis or otherwise, the required approvals by Edgewater stockholders and Alithya shareholders, the Québec court and applicable government and regulatory authorities, the terms of those approvals, the risk that a condition to closing contemplated by the arrangement agreement may not be satisfied or waived, the inability to realize expected synergies or cost savings or difficulties related to the integration of Edgewater and Alithya operations, the ability of New Alithya to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners, or other adverse events, changes in applicable laws or regulations, competition from other IT consulting companies, and other risks disclosed in Edgewater’s public filings, any or all of which could cause actual results to differ materially from future results expressed, projected or implied by the forward-looking statements. The forward-looking statements in this prospectus/proxy statement are qualified by these risk factors. As a result of these risks and uncertainties, the transactions could be modified, restructured or not be completed, and actual results and events may differ materially from the results and events contemplated in these forward-looking statements and from historical results. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this prospectus/proxy statement or the date of any document incorporated by reference. You should carefully read this prospectus/proxy statement together with the information incorporated herein by reference as described under the heading “Where You Can Find More Information” completely and with the understanding that actual future results may be materially different from those that are expected by Edgewater and Alithya. Except as otherwise required by law, none of Edgewater, Alithya or New Alithya undertakes any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, or to comment on expectations of, or statements made by the other party or third parties in respect of the transactions. These forward-looking statements are not guarantees of future performance, given that they involve risks and uncertainties. You should not assume that any lack of update to a previously issued forward-looking statement constitutes a reaffirmation of that statement. Continued reliance on forward-looking statements is at your own risk.

 

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Additional information about these and other risks and uncertainties and about the material factors or assumptions underlying such forward-looking statements may be found in this prospectus/proxy statement under the section entitled “Risk Factors,” as well as under the section entitled “Risk Factors” in Edgewater’s Form 10-K, Form 10-Q and Form 8-K filings with the SEC.

 

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THE MERGER AND THE ARRANGEMENT

The Merger and the Arrangement

Under the terms of the arrangement agreement, (a) New Alithya will acquire Alithya pursuant to a plan of arrangement under the laws of Québec, Canada and (b) U.S. Merger Sub will merge under Delaware law with and into Edgewater, with Edgewater as the surviving corporation in the merger. As a result of the transactions, both Edgewater and Alithya will become wholly-owned subsidiaries of New Alithya. Upon consummation of the transactions, Alithya will be renamed “Alithya Canada inc.”

As consideration for the merger, Edgewater stockholders will receive 1.3118 newly issued New Alithya Subordinate Voting Shares in exchange for each share of Edgewater Common Stock held by such stockholders. However, Alithya has a termination right if the VWAP of the Edgewater Common Stock on NASDAQ for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million. See “The Arrangement Agreement—Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders” beginning on page 114.

In addition to the right of Edgewater stockholders to receive New Alithya Subordinate Voting Shares in the transactions, Edgewater will declare to Edgewater stockholders and option holders of record immediately prior to the anticipated closing date of the arrangement a special dividend equal to U.S.$20.5 million, provided that (i) the total amount of the dividend will proportionately increase or decrease to the extent that Edgewater’s “Net Cash” (as defined in the arrangement agreement) is then greater or less than U.S.$8.5 million, as the case may be, and (ii) the dividend will be payable either in cash (for Edgewater’s stockholders) or reflected through adjustment (for holders of Edgewater’s options) to the exercise price of such options, as the case may be. Payment of the special dividend will be contingent upon the closing of the transactions and will be declared at least 10 days prior to, and be paid within 10 days following, such closing. The application of the adjustment formula described above will likely result in a special dividend amount that is less than U.S.$20.5 million.

Based on Edgewater’s currently expected “Net Cash” as of the closing of the transactions, the total amount of the special dividend would have been approximately U.S.$16.0 million, or approximately U.S.$1.07 for each share of Edgewater Common Stock then outstanding (applying the full dilution, in-the-money options treatment to the current basic shares outstanding), if the closing had occurred immediately following September 27, 2018. However, the actual amount of the special dividend may be either higher or lower based on Edgewater’s business, financial condition and liquidity between September 27, 2018 and the dividend declaration date.

Edgewater intends to fund payment of the special dividend to its stockholders with its available cash and borrowings under its existing revolving credit facility with Citizens Bank, N.A. Prior to the closing of the merger, pursuant to a letter which Edgewater has received from Citizens Bank, N.A., Edgewater expects to amend the facility in order to allow Edgewater to draw up to an additional U.S.$7.0 million to fund payment of the special dividend. However, such funding will be subject to certain conditions, including that the entire outstanding amount under the facility be repaid prior to or concurrently with the payment of the special dividend.

In order to repay the entire outstanding amount under Edgewater’s existing revolving credit facility prior to or concurrently with the payment of the special dividend, New Alithya intends to rely on the available cash and financing commitments of Alithya and/or New Alithya and, to the extent necessary, proceeds from a private placement by Alithya prior to or contemporaneously with the closing of the transactions of up to $50 million of subscription receipts (plus up to an additional 15% of the offering amount as the underwriters’ option to purchase additional securities) that will convert into New Alithya Subordinate Voting Shares upon closing of the transactions. There is no assurance that any of these funds or financing commitments will be available to Alithya or New Alithya on acceptable terms, in a timely manner or at all. Any financing by Alithya or New Alithya

 

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would depend on favorable market conditions and the availability of financing terms that are acceptable to Alithya or New Alithya, as the case may be, and it is possible that prevailing market conditions and available terms may result in a lesser amount or no capital being raised. In the event that the conditions allowing Edgewater to draw down its existing revolving credit facility to fund the payment of the special dividend are not satisfied, Edgewater may be unable to pay the special dividend on the dividend payment date.

As consideration for the transactions, each Alithya Common Share and each Alithya Multiple Voting Common Share then issued and outstanding will be cancelled and automatically converted into the right to receive one newly issued New Alithya Subordinate Voting Share and one newly issued New Alithya Multiple Voting Share, respectively.

Background of the Transactions

Edgewater helps the C-suite drive transformational change through its unique selection of business and technology services and channel-based solutions. Delivering both on premise and in the cloud, Edgewater offers two major channel-based services. In the Microsoft channel, Edgewater Fullscope delivers Dynamics AX ERP, Business Intelligence and CRM solutions primarily in the manufacturing space. In the Oracle channel, Edgewater Ranzal provides Business Analytics solutions leveraging Oracle EPM, Business Intelligence and Big Data technologies.

As part of its fiduciary duty, the Edgewater board of directors and senior management regularly review Edgewater’s performance, future growth prospects and overall strategic direction and consider potential opportunities to strengthen its business and enhance shareholder value. These reviews have included consideration of potential transactions with third parties that would further Edgewater’s strategic objectives, including strategic business partnerships, potential acquisitions, reorganizations and changes in corporate structure.

From November 2015 to November 2016, Edgewater undertook a process with the assistance of a financial advisor to review its strategic alternatives to enhance shareholder value. Ultimately, the Edgewater board of directors made a determination to continue to execute on Edgewater’s strategic plan as a stand-alone public company.

After changes in the composition of the Edgewater board of directors and senior management in the first quarter of 2017, members of the Edgewater board of directors and senior management undertook a reassessment of the evolving business environment facing Edgewater’s business units and the competitive pressures faced therein, and began to evaluate the viable landscape relevant to Edgewater’s long-term prospects, including potential merger, acquisition, business unit dispositions and other strategic opportunities. In connection with its review of strategic alternatives, the Edgewater board of directors contemplated engaging third parties, including William Blair, to assist in determining and executing a strategic path forward for Edgewater. William Blair was under consideration to act as Edgewater’s financial advisor because of William Blair’s extensive expertise in the IT services area and William Blair’s significant existing knowledge about Edgewater and its business units after acting as an advisor to a potential buyer in the prior strategic review process undertaken by Edgewater.

On March 13, 2017, William Blair made an informal introductory presentation to the Edgewater board of directors regarding strategic planning matters.

On April 25, 2017, Jeffrey Rutherford, Edgewater’s Chairman of the Board, Interim Chief Executive Officer and Interim President, and Frederick DiSanto, Edgewater’s Lead Independent Director, had dinner with Paul Raymond, Alithya’s Chief Executive Officer and President, and Mathieu Lupien, Alithya’s then Chief Financial Officer. Mr. Raymond indicated that Alithya was involved in the prior strategic review process undertaken by Edgewater and expressed Alithya’s continued interest in a potential transaction involving Edgewater if the opportunity arose in the future. Mr. Raymond also indicated that Alithya was not prepared to pursue such a transaction at that time since Alithya was involved in another potential acquisition process.

 

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On May 19, 2017, the Edgewater board of directors held a telephonic meeting at which representatives of Edgewater senior management, William Blair and McDonald Hopkins LLC (“McDonald Hopkins”), Edgewater’s corporate legal counsel, were present. William Blair made a presentation that analyzed various scenarios that included not only analysis of a sale of Edgewater as an entire company but also analysis of a potential “sum-of-the-parts” sale process involving separate processes for Edgewater Fullscope and Edgewater Ranzal. Following the presentation, the Edgewater board of directors reviewed and evaluated the presentation provided by William Blair. There was consensus in favor of Edgewater undertaking a new review of strategic alternatives, and the Edgewater board of directors determined that William Blair was well qualified to assist in the process in light of its extensive IT services area experience and its existing knowledge of Edgewater and its business units. After discussion, the Edgewater board of directors authorized the engagement of William Blair to provide financial advisory and investment banking services to Edgewater.

On May 31, 2017, Edgewater formally engaged William Blair. On June 1, 2017, Edgewater senior management conducted an initial meeting with William Blair to discuss Edgewater’s business and a preliminary process timeline.

During June and July 2017, William Blair, working with the Edgewater board of directors and senior management, prepared executive summary documents and preliminary confidential information presentations describing Edgewater Fullscope and Edgewater Ranzal and historical financial information. Alongside William Blair, the Edgewater board of directors and senior management identified a broad group of potential strategic and financial buyers that they believed might be interested in acquiring certain of Edgewater’s business units, or merging with Edgewater, would provide value to Edgewater stockholders and would also have the requisite financial resources.

In June 2017, at the direction of the Edgewater board of directors, William Blair began contacting potential buyers. Throughout the entire process, William Blair contacted 76 potential buyers, executed non-disclosure agreements, provided requested presentation and financial information, granted virtual data room access to, and completed diligence requests for a subset of those potential buyers that had demonstrated interest in one or more of Edgewater’s business units. Upon conclusion of the process, 27 non-disclosure agreements were executed, and confidential information presentations were provided to potential buyers.

Between June and September 2017, William Blair made presentations to members of the Edgewater board of directors to apprise them of the process and provide situational updates on creation of marketing materials, timeline and initial buyer outreach, among other topics. During this same time, Edgewater senior management met telephonically and in person with select potential buyers to discuss Edgewater Fullscope and/or Edgewater Ranzal, financial results and strategic opportunities.

In August and September 2017, representatives of William Blair and Edgewater contacted senior management of Alithya on several occasions to determine if Alithya was interested in acquiring Edgewater Ranzal or the entire Edgewater company. Mr. Raymond indicated that Alithya remained interested in an acquisition of the entire Edgewater company but that Alithya was not prepared to consider the Edgewater opportunity at that time since Alithya was involved in another potential acquisition process.

On September 22, 2017, Buyer E, a strategic party with several similar business units, submitted to William Blair a non-binding initial indication of interest for a merger transaction involving Edgewater Ranzal. Buyer E’s initial indication of interest for Edgewater Ranzal implied a post-merger equity split of 57.7% for Buyer E stockholders and 42.3% for Edgewater stockholders, included a 20.0% control premium and contributed U.S.$61.0 million of debt to the combined business. Buyer E’s indication of interest constituted a merger with Edgewater Ranzal only and assumed that Edgewater Fullscope and Edgewater’s classic consulting business units would be sold in a separate transaction(s).

 

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On September 27, 2017, Buyer T, a financial sponsor, submitted to William Blair a non-binding initial indication of interest for the acquisition of Edgewater Fullscope. Buyer T’s indication of interest offered a range of consideration between U.S.$42.5 million to U.S.$49.0 million in cash.

Also on September 27, 2017, the Edgewater board of directors held a telephonic meeting at which representatives of Edgewater senior management, William Blair and McDonald Hopkins were present. William Blair presented an update of William Blair’s activities regarding the sale process and a summary of the indications of interest received. Among other items, William Blair also presented a process timeline and informed the Edgewater board of directors of certain key feedback William Blair had received from potential buyers with whom William Blair had been engaging on behalf of Edgewater. The Edgewater board of directors asked questions about and provided comments regarding the material presented. The Edgewater board of directors ultimately determined that neither of the indications of interest was a compelling offer at this stage in the process and for William Blair to contact additional buyer prospects. However, the Edgewater board of directors determined that both interested parties should be given feedback on their offers and remain in the process in order to keep the process competitive.

During October 2017, William Blair and Edgewater senior management continued to hold discussions with interested parties, including Buyer E and Buyer T, and also initiated conversations with additional parties. Buyer T was eventually removed from Edgewater’s process as a result of Buyer T’s unwillingness to increase its offer.

In early November 2017, senior management of Alithya contacted William Blair and indicated that Alithya was now interested in pursuing a transaction involving Edgewater since its other acquisition opportunity was on hold.

On November 9, 2017, following subsequent telephone calls between William Blair and Buyer E and additional diligence, Buyer E submitted to William Blair a revised indication of interest for a merger transaction involving Edgewater Ranzal. Buyer E’s revised indication of interest for Edgewater Ranzal implied a post-merger equity split of 48.5% for Buyer E stockholders and 51.5% for Edgewater stockholders. The revised indication of interest assumed a U.S.$1.8 million decrease in Edgewater Ranzal’s pro forma segment EBITDA from Buyer E’s initial indication of interest. The revised indication of interest constituted a merger with only Edgewater Ranzal and assumed that Edgewater Fullscope and Edgewater’s classic consulting business units would be sold in a separate transaction(s).

Also on November 9, 2017, Buyer A submitted to William Blair an indication of interest for the acquisition of Edgewater Fullscope for U.S.$50.0 million in cash.

On November 14, 2017, the Edgewater board of directors held a telephonic meeting at which representatives of Edgewater senior management, William Blair and McDonald Hopkins were present. William Blair presented an update of activities related to exploration of strategic alternatives. Specifically, William Blair presented Buyer E’s revised indication of interest to merge with Edgewater Ranzal and Buyer A’s initial indication of interest to acquire Edgewater Fullscope. A discussion followed regarding the details of the bids and the appropriate go-forward alternatives.

On November 20, 2017, senior leadership from Edgewater, Edgewater Fullscope and Edgewater Ranzal held in-person management meetings with Paul Raymond, Chief Executive Officer, and Claude Rousseau, Chief Operating Officer, from Alithya. Senior leadership from Edgewater Fullscope and Edgewater Ranzal presented overviews of their respective business units to the representatives from Alithya.

Throughout November and December 2017, William Blair and Edgewater senior management continued discussions with interested parties.

On December 8, 2017, Alithya submitted to William Blair a draft non-binding term sheet for a proposed merger transaction involving Edgewater Fullscope and Edgewater Ranzal. The draft term sheet proposed a post-

 

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merger equity split of 55.0% for Alithya shareholders and 45.0% for Edgewater stockholders. William Blair informed Alithya that it was unlikely that its proposal would be well received by the Edgewater board of directors since the proposed equity split was not reflective of the adjusted EBITDA each party was contributing to the combined entity.

On December 15, 2017, Alithya submitted to William Blair a revised non-binding term sheet that proposed a minimum post-merger equity split of 51.0% for Alithya shareholders and a maximum post-merger equity split of 49.0% for Edgewater stockholders. The revised term sheet also permitted a U.S.$13.0 million dividend payable to Edgewater stockholders immediately prior to closing of the transaction and contained other provisions such as completion of satisfactory due diligence on Edgewater and its business units.

On December 19, 2017, Buyer E submitted to William Blair a revised indication of interest containing three separate transaction proposals: (i) a combination of Buyer E’s Consulting Services (“ECS”) and Digital Services (“EDS”) businesses with Edgewater Ranzal, with an implied post-transaction equity split of 48.5% for Buyer E stockholders and 51.5% for Edgewater stockholders, and a U.S.$5.0 million dividend payable to Buyer E stockholders; (ii) a sale of Buyer E’s ECS business to Edgewater for U.S.$35.0 million in cash and ownership in the combined company, with an implied post-transaction equity split of 10.0% to Buyer E stockholders and 90.0% to Edgewater stockholders; and (iii) a combination of Buyer E’s ECS and EDS businesses with Edgewater, including Edgewater Fullscope, with an implied post-transaction equity split of 32.0% to Buyer E stockholders and 68.0% to Edgewater stockholders, and a U.S.$5.0 million dividend payable to Buyer E stockholders.

Also on December 19, 2017, Buyer A submitted to William Blair a revised indication of interest for the acquisition of Edgewater Fullscope for U.S.$57.5 million in cash. Buyer A’s revised indication of interest represented a U.S.$7.5 million increase from its November 9, 2017 indication.

On December 22, 2017, Edgewater’s board of directors held a telephonic meeting at which representatives of Edgewater senior management, William Blair, McDonald Hopkins and Davis, Malm & D’Agostine, P.C. (“Davis Malm”), Edgewater’s securities legal counsel, were present. William Blair updated the Edgewater board of directors regarding the bids submitted by Alithya, Buyer A and Buyer E. A discussion followed regarding the bids and due diligence process. After the discussion, there was consensus to move forward with Alithya and for William Blair to submit a counterproposal to Alithya with an implied post-transaction equity split of 51.0% to Alithya shareholders and 49.0% to Edgewater stockholders, as well as a U.S.$29.1 million dividend payable to Edgewater stockholders. The Edgewater board of directors selected Alithya’s proposal as being in the best interest of Edgewater’s stockholders because: (i) it was a whole company solution instead of a sum-of-the-parts sale of the business units, which inherently involves greater risk of completion; (ii) the combination with Alithya provided attractive revenue and cost synergies for both Edgewater Fullscope and Edgewater Ranzal; and (iii) a near-term dividend for existing Edgewater stockholders in addition to the remaining ownership stake in New Alithya represented a significant premium to Edgewater’s price per share. The Edgewater board of directors decided not to pursue Buyer A’s proposal for just the Edgewater Fullscope unit because the proposal involved greater risk of completion and the remaining Edgewater business would be an even smaller public company by market capitalization and burdened by significant overhead and public company costs. The Edgewater board of directors decided not to pursue Buyer E’s revised proposal because the carve-out of Edgewater Ranzal would entail greater risk of completion than a whole company transaction and because Buyer E’s proposal required the assumption of a significant amount of debt, which would leave the combined business with a debt / EBITDA level well above those of comparable public companies.

On December 26, 2017, Alithya submitted to William Blair a revised non-binding term sheet with an implied post-transaction equity split of 60.0% to Alithya shareholders and 40.0% to Edgewater stockholders, as well as a U.S.$25.0 million dividend payable to Edgewater stockholders.

 

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On December 27, 2017, William Blair submitted to Alithya a counterproposal with an implied post-transaction equity split of 55.0% to Alithya shareholders and 45.0% to Edgewater stockholders, as well as a U.S.$25.0 million dividend payable to Edgewater stockholders.

On December 29, 2017, Alithya submitted to William Blair a revised non-binding term sheet with an implied post-transaction equity split of 55.0% to Alithya shareholders and 45.0% to Edgewater stockholders, as well as a U.S.$15.0 million dividend payable to Edgewater stockholders.

On January 2, 2018, the Edgewater board of directors held a telephonic meeting at which representatives of Edgewater senior management, William Blair and McDonald Hopkins were present. William Blair reviewed the terms of the non-binding term sheet submitted by Alithya and explained various alternative proposals discussed by Alithya and William Blair. The Edgewater board of directors, with input from Edgewater senior management, William Blair and McDonald Hopkins, discussed the proposed transaction and various potential alternative proposals. There was consensus in favor of a revised proposal that would include a post-transaction equity split of 55.0% to Alithya shareholders and 45.0% to Edgewater stockholders, as well as a U.S.$20.5 million dividend payable to Edgewater stockholders. Following discussion, the Edgewater board of directors authorized and approved the terms of the non-binding term sheet submitted by Alithya, substantially in the form presented to the Edgewater board of directors, subject to the changes discussed above, provided that the Interim President and Chief Executive Officer of Edgewater would be authorized to negotiate and make such final modifications to the non-binding term sheet determined by such officer to be necessary or appropriate.

Also on January 2, 2018, William Blair submitted to Alithya a counterproposal with an implied post-transaction equity split of 55.0% to Alithya shareholders and 45.0% to Edgewater stockholders, as well as a U.S.$20.5 million dividend payable to Edgewater stockholders.

Between January 5, 2018 and January 9, 2018, Alithya and Osler, Hoskin & Harcourt LLP (“Osler”), Alithya’s legal counsel, Edgewater, William Blair and McDonald Hopkins exchanged comments to the non-binding term sheet submitted by Alithya. The focus of the discussions involved proposed revisions of business terms related to specified financial targets for each of Alithya and Edgewater to be met as of closing, Edgewater stockholder lock-up agreements and an exclusivity period applicable to Edgewater.

On January 9, 2018, Alithya and Edgewater signed an non-binding term sheet providing for: (i) a post-transaction implied equity split of 55.0% to Alithya shareholders and 45.0% to Edgewater stockholders, (ii) founders of Alithya holding Alithya Multiple Voting Common Shares would receive equivalent New Alithya Multiple Voting Shares, (iii) specified financial targets for each of Alithya and Edgewater would be met as of closing; (iv) Edgewater would be permitted to declare a special dividend prior to closing of U.S.$20.5 million, subject to a dollar-for-dollar increase or decrease to the extent Edgewater’s net cash position immediately prior to closing is greater or less than U.S.$8.5 million; (v) three of the nine members of the board of directors of the New Alithya would be nominated by Edgewater; and (vi) Edgewater would be subject to a 75-day exclusivity period.

On January 10, 2018, Alithya and William Blair discussed next steps in the process.

On January 11, 2018, Alithya, Alithya’s advisors, Edgewater and Edgewater’s advisors participated in a telephonic meeting to formally begin the process.

Throughout January, February and March 2018, Alithya and Edgewater continued to conduct mutual due diligence. During this period, Alithya engaged Desjardins Securities Inc. (“Desjardins”) to be its financial advisor and Raymond Chabot Grant Thornton (“RCGT”) to perform its accounting and tax due diligence. Also during this period, Edgewater engaged KPMG LLP (“KPMG”) to perform due diligence on Alithya in the accounting, tax, human resources and IT areas. The companies and their advisors met in person and conducted multiple telephonic meetings. Discussions during this period revolved around process timeline, diligence efforts and financial projections.

 

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On February 27, 2018, Osler sent a draft arrangement agreement for the proposed transaction to Edgewater, McDonald Hopkins and Davis Malm. In addition to the key terms addressed in the non-binding term sheet signed by the parties, the draft arrangement agreement included a termination right for Alithya in the event the Edgewater stock price for the 20 trading days prior to closing was less than a specified floor amount.

On March 2, 2018, the Edgewater board of directors held a telephonic meeting at which representatives of Edgewater senior management, William Blair, McDonald Hopkins and Davis Malm were present. William Blair provided an update to the Edgewater board of directors regarding the process and anticipated timeline to signing and announcing the contemplated transaction with Alithya. McDonald Hopkins reviewed key provisions included in the initial draft of the arrangement agreement.

On March 5, 2018, McDonald Hopkins sent a revised draft of the arrangement agreement to Alithya and Osler.

On March 7, 2018, the Edgewater board of directors met with Paul Raymond, Alithya’s Chief Executive Officer and President, to discuss his vision for the combined entity, Alithya’s strategic approach and his perspective of the benefits of combining the operations of Alithya and Edgewater.

Also on March 7, 2018, McDonald Hopkins sent a draft shareholders agreement to Alithya and Osler that included a voting arrangement among certain Alithya shareholders and Edgewater stockholders to address board composition for New Alithya and registration rights for New Alithya Shares.

On March 8, 2018, Osler, McDonald Hopkins and Davis Malm discussed various open issues with the arrangement agreement, including a floor trading price and other financial targets that would be conditions to closing, required tax-related opinions, the capital structure and the board composition for New Alithya and an expense fee if the arrangement agreement is terminated under certain circumstances. Osler indicated that Alithya’s intention was to address board composition matters for New Alithya by post-closing covenants included in the arrangement agreement rather than having a separate shareholders agreement.

On March 9, 2018, the Edgewater board of directors held a meeting at which representatives of Edgewater senior management, William Blair, McDonald Hopkins, Davis Malm and KPMG were present. William Blair provided an update regarding timing of the transaction and the status of its financial modeling. KPMG presented findings of its financial statement due diligence of Alithya and other accounting diligence matters. KPMG also presented the findings of its diligence review of Alithya in the tax, human resources and IT areas. McDonald Hopkins then discussed the legal due diligence of Alithya completed by U.S. and Canadian counsel for Edgewater with respect to organizational, lease and contract matters involving Alithya. Edgewater senior management, together with McDonald Hopkins, then provided a status report regarding the negotiation of the definitive arrangement agreement.

During the evening of March 9, 2018, Mr. Raymond communicated to Mr. Rutherford concerns regarding the recent financial performance of the Edgewater Ranzal business unit. In light of such concerns, Mr. Raymond indicated to Mr. Rutherford that Alithya was proposing changes to the transaction terms that would result in a reduced equity ownership percentage in New Alithya for Edgewater stockholders.

On March 10, 2018, Desjardins and William Blair discussed proposed changes to the transaction terms. The focus of the discussions involved the post-transaction equity split in New Alithya for Alithya shareholders and Edgewater stockholders and a floor trading price for the Edgewater stock prior to closing before there is triggered either an adjustment to the exchange ratio for the Edgewater stock or a termination right for the benefit of Alithya. Desjardins communicated that Alithya proposed changing the post-transaction equity split from the previously agreed upon 55.0% for Alithya shareholders and 45.0% for Edgewater stockholders to 60.0% for Alithya shareholders and 40.0% for Edgewater stockholders. In addition, Desjardins communicated that Alithya proposed that the floor trading price be U.S.$5.10.

 

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During March 10, 2018 and March 11, 2018, Mr. Rutherford and William Blair provided updates to Edgewater board members regarding the ongoing negotiations with Alithya. Mr. Rutherford indicated the key economic terms being discussed were the post-transaction equity split in New Alithya and the floor trading price concept. Edgewater board members were in favor of proposing a potential reduction to the amount of the dividend payable to Edgewater stockholders in order to increase the post-transaction equity split in New Alithya for Edgewater stockholders.

During March 11, 2018 and March 12, 2018, Desjardins and William Blair discussed a number of proposals and counterproposals that centered on three economic terms: (i) the post-transaction equity split in New Alithya for Alithya shareholders and Edgewater stockholders; (ii) the amount of the dividend payable to Edgewater stockholders; and (iii) a floor trading price for the Edgewater stock prior to closing before there is triggered either an adjustment to the exchange ratio for the Edgewater stock or a termination right for the benefit of Alithya.

On March 12, 2018, Alithya and Edgewater agreed to: (i) the post-merger equity split of 58.0% for Alithya shareholders and 42.0% for Edgewater stockholders; (ii) a U.S.$20.5 million dividend payable to Edgewater stockholders; and (iii) a U.S.$5.25 floor trading price for the Edgewater stock prior to closing before there is triggered either an adjustment to the exchange ratio for the Edgewater Common Stock or a termination right for the benefit of Alithya.

Also on March 12, 2018, Osler sent a revised draft of the arrangement agreement to Edgewater, McDonald Hopkins and Davis Malm and a draft of the support agreement to be entered into by certain Alithya shareholders and Edgewater stockholders.

Between March 12, 2018 and March 14, 2018, Alithya, Desjardins, Osler, Edgewater, William Blair, McDonald Hopkins and Davis Malm exchanged comments to the arrangement agreement.

On March 13, 2018, representatives of Osler, McDonald Hopkins and Davis Malm finalized the terms of the support agreement.

On March 14, 2018, William Blair presented its fairness opinion to William Blair’s Fairness Opinion Committee. No objections were raised as to the fairness of the transaction by William Blair’s Fairness Opinion Committee.

Also on March 14, 2018, the Edgewater board of directors held a meeting at which representatives of Edgewater senior management, William Blair, McDonald Hopkins and Davis Malm were present. Edgewater senior management and William Blair updated the Edgewater board of directors regarding the negotiations with Alithya since the March 9, 2018, conversation between Mr. Raymond and Mr. Rutherford. William Blair summarized the various scenarios considered since March 9, 2018, and analyzed the implied valuations in light of the post-transaction equity split and the dividend amounts included in such scenarios.

Following the presentation by William Blair, Edgewater senior management and McDonald Hopkins reviewed the overall process involving Alithya and the negotiation of the definitive arrangement agreement and ancillary documents, including the support agreements with officers, directors and a major stockholder of Edgewater. McDonald Hopkins then reviewed in detail the terms of the arrangement agreement, specifically addressing: (i) the structure of the transaction, including capital structure of New Alithya, stock and option exchanges, the registration process and expected tax treatment; (ii) the representations, warranties and covenants of the parties; (iii) key financial terms, including financial targets for the parties at closing, the special dividend to Edgewater stockholders and the floor trading price for Edgewater stock before there is triggered either an adjustment to the exchange ratio for the Edgewater stock or a termination right for the benefit of Alithya; (iv) the composition of the board of directors of New Alithya after closing; (v) closing conditions; (vi) no-shop terms and fiduciary out provisions; and (vii) termination provisions, including potential termination fees and expense fees.

 

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During the morning of March 15, 2018, Osler sent a revised draft of the arrangement agreement to Edgewater, McDonald Hopkins and Davis Malm.

Also on March 15, 2018, the Edgewater board of directors held a meeting at which representatives of Edgewater senior management, William Blair, McDonald Hopkins and Davis Malm were present. McDonald Hopkins reviewed the revised arrangement agreement and the changes made since the conclusion of the meeting on March 14, 2018. William Blair then presented its fairness opinion to the Edgewater board of directors. William Blair’s financial analysis regarding the fairness opinion is summarized below under the heading “—Opinion of Edgewater’s Financial Advisor” beginning on page 73. In the evening of March 15, 2018, William Blair presented Edgewater’s legal counsel with a letter indicating that as of that date and based on and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the exchange ratio for the Edgewater Common Stock and the dividend payable to Edgewater stockholders pursuant to the terms and conditions set forth in the arrangement agreement are fair from a financial perspective to Edgewater stockholders.

Following the presentation by William Blair, the Edgewater board of directors, with input from Edgewater senior management, discussed the proposed transaction, the benefits and risks of combining Edgewater’s operations with Alithya and the risks of remaining a stand-alone entity. Based upon the discussions and deliberations at the March 9, 2018, March 14, 2018 and March 15, 2018, meetings, the support of Edgewater senior management and other factors described under the heading “—Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger” beginning on page 67, the Edgewater board of directors authorized and approved the arrangement agreement and its terms and conditions, substantially in the form presented to the Edgewater board of directors, provided that the Interim President and Chief Executive Officer of Edgewater would be authorized to negotiate and make such final modifications to such arrangement agreement determined by such officer to be necessary or appropriate.

During the evening of March 15, 2018, the parties finalized and signed the arrangement agreement, and certain Alithya shareholders and Edgewater stockholders signed support agreements.

During the morning of March 16, 2018, the parties publicly announced the transaction. Later on March 16, 2018, Edgewater filed with the SEC a Form 8-K reporting the signing of the arrangement agreement and its Form 10-K for Edgewater’s fiscal year ended December 31, 2017 describing the signing of the arrangement agreement as a subsequent event.

On March 19, 2018, Alithya and Edgewater held a joint conference call for investors.

On September 10, 2018, the Edgewater board of directors held a meeting at which representatives of Edgewater senior management and McDonald Hopkins were present. At that meeting, Edgewater senior management and McDonald Hopkins reviewed and discussed a proposed amendment to the arrangement agreement. The proposed amendment contemplated, among other changes, extending the outside date to December 15, 2018, clarifying certain deliverables of Edgewater to Alithya prior to closing, clarifying the timing and procedure of the declaration and payment of the Edgewater special dividend, clarifying the calculation of the exchange ratio and removing the delivery of a legal opinion relating to Section 7874 of the Code as a closing condition for both Alithya and Edgewater, based on the board of directors of each of Alithya and Edgewater determining that the likelihood of New Alithya being treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code is sufficiently low to not warrant the associated time and cost. Based upon such discussions, the Edgewater board of directors authorized and approved the amendment to the arrangement agreement, substantially in the form presented to the Edgewater board of directors, provided that the Interim President and Chief Executive Officer of Edgewater would be authorized to negotiate and make such final modifications to such amendment to arrangement agreement determined by such officer to be necessary or appropriate.

On September 10, 2018, the parties finalized and signed the amendment to the arrangement agreement.

 

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On September 11, 2018, Edgewater filed with the SEC a Form 8-K reporting the signing of the amendment to arrangement agreement.

Recommendations of Edgewater’s Board of Directors; Edgewater’s Reasons for the Merger

At its meetings held on March 14, March 15 and September 10, 2018, the Edgewater board of directors unanimously approved the arrangement agreement and the transactions contemplated thereby (including the merger). The Edgewater board of directors unanimously recommends that the stockholders of Edgewater vote for the approval and adoption of the arrangement agreement and the transactions contemplated thereby (including the merger) and for the other resolutions to be considered at the Edgewater special meeting.

The Edgewater board of directors considered many factors in determining to recommend the approval and adoption of the arrangement agreement and the transactions contemplated thereby (including the merger). In arriving at its determination, the board of directors consulted with Edgewater’s senior management, legal advisors, financial advisors, accounting advisors and other advisors, reviewed a significant amount of information, considered a number of factors and concluded, in the board’s business judgment, that the transactions are likely to result in significant strategic and financial benefits to Edgewater and its stockholders, including:

 

   

the establishment of a larger platform for the combined company to pursue its disciplined build-and-buy strategy while capitalizing on the sizeable growing demand for digital technology services;

 

   

the complementary nature of the operations of Alithya and Edgewater from a geographic perspective in light of Alithya’s significant presence in Canadian markets and Edgewater’s significant presence in United States markets;

 

   

significant cost synergies stemming from the optimization of corporate functions;

 

   

the experienced management team of Alithya, with track record of successful organic and inorganic growth, to lead the business of New Alithya;

 

   

a leadership position in the implementation of Oracle EBS, EPM and ERP Cloud as well as Microsoft ERP and CRM Cloud solutions;

 

   

increased revenue diversification with greater consulting coverage;

 

   

the benefits of a dual listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX, including a potential lower cost of capital and increased liquidity; and

 

   

a pre-closing dividend payment of U.S.$20.5 million in cash to the Edgewater stockholders, subject to a dollar-for-dollar increase or decrease to the extent Edgewater’s net cash position immediately prior to closing is greater or less than U.S.$8.5 million.

These beliefs are based in part on the following factors considered by the Edgewater board of directors:

 

   

that the service offerings and geographic scopes of Edgewater and Alithya are complementary and do not present significant areas of overlap;

 

   

the anticipated market capitalization, strong balance sheet, free cash flow, liquidity and capital structure of New Alithya;

 

   

the business, operations, financial condition and future prospects of Alithya;

 

   

the current and prospective economic environment and increasing competitive burdens and constraints facing Edgewater, specifically Edgewater’s Oracle EPM business in light of Oracle ecosystem developments; (i.e., Oracle’s push toward the adoption of cloud-based technologies resulting in the need for significant investment by Edgewater in product development and cloud operations and a negative impact on the service revenue in Edgewater Ranzal’s EPM space, including potential project delays as customers make decisions regarding the transition from on-premise to cloud-based solutions);

 

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the fact that the holders of the New Alithya Multiple Voting Shares will not be permitted to sell or otherwise transfer such shares, except to their respective affiliates, and any holder of New Alithya Multiple Voting Shares wishing to sell such shares in the future must first convert such shares into New Alithya Subordinate Voting Shares on a one-for-one basis;

 

   

the likelihood that the transactions will be completed on a timely basis and the limited number of conditions to Alithya’s obligation to complete the transactions;

 

   

the fact that the transactions are subject to the approval and adoption of the arrangement agreement by the Edgewater stockholders;

 

   

that, subject to certain limited exceptions, Alithya is prohibited from soliciting, participating in any discussions or negotiations with respect to, or providing any information to any third party regarding or entering into any agreement providing for the acquisition of Alithya;

 

   

that Alithya must pay a termination fee of U.S.$4.0 million if the arrangement agreement is terminated under certain circumstances specified therein;

 

   

that Alithya must pay an expense fee of U.S.$2.0 million if the arrangement agreement is terminated under certain circumstances specified therein;

 

   

the financial statements of Alithya and the prospective financial information described in more detail under the heading “—Edgewater and Alithya Unaudited Prospective Financial Information” beginning on page 69; and

 

   

the financial analyses reviewed and discussed with the Edgewater board of directors by representatives of William Blair, as well as the oral opinion of William Blair rendered to the Edgewater board of directors on March 15, 2018 (which was subsequently confirmed in writing by delivery of a written opinion of William Blair dated March 15, 2018) that, subject to the assumptions, limitations, qualifications and conditions contained in the written opinion, the aggregate consideration to be received by the Edgewater stockholders pursuant to the transactions contemplated by the arrangement agreement is fair, from a financial point of view, to Edgewater stockholders; see “—Opinion of Edgewater’s Financial Advisor” beginning on page 73.

In the course of its deliberations, the Edgewater board of directors also considered a variety of risks and other potentially negative factors, including the following:

 

   

the fact that, although the parties anticipate that the former Edgewater stockholders will hold approximately 42% of the total outstanding New Alithya Shares, the former Edgewater stockholders will hold approximately 17% of the total voting power of New Alithya Shares as result of the Alithya shareholders holding Alithya Multiple Voting Common Shares receiving New Alithya Multiple Voting Shares (i.e., ten votes per share) in the transactions;

 

   

the fact that New Alithya’s board of directors will consist of nine directors, of whom six will be nominated by Alithya and three by Edgewater;

 

   

the fact that Alithya has a termination right if the VWAP of the Edgewater Common Stock on NASDAQ for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million; see “Arrangement Agreement—Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders” beginning on page 114;

 

   

the exchange ratio will not adjust nor will Edgewater have any termination rights in the event there is a decrease in the value of Alithya relative to the value of Edgewater prior to closing, including a decrease attributable to fluctuations in the exchange rate between the Canadian dollar and U.S. dollar;

 

   

the risk that Edgewater must pay a termination fee of U.S.$4.0 million if the arrangement agreement is terminated under certain circumstances specified therein;

 

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the risk that Edgewater must pay an expense fee of U.S.$2.0 million if the arrangement agreement is terminated under certain circumstances specified therein;

 

   

that, subject to certain limited exceptions, Edgewater is prohibited from soliciting, participating in any discussions or negotiations with respect to, or providing any information to any third party regarding or entering into any agreement providing for the acquisition of Edgewater;

 

   

the restrictions on the conduct of Edgewater’s business prior to the completion of the transactions, which could delay or prevent Edgewater from undertaking some business opportunities that may arise pending completion of the transactions;

 

   

the adverse impact that business uncertainty pending the effective time of the transactions could have on Edgewater’s ability to attract, retain and motivate key personnel until the effective time of the transactions;

 

   

the fact that Edgewater has incurred and will continue to incur significant transaction costs and expenses in connection with the proposed transactions, regardless of whether the transactions are consummated;

 

   

the risk that the forecasted results in the unaudited prospective financial information of Edgewater and Alithya will not be attained;

 

   

the risk that the transactions may not be consummated despite the parties’ efforts or that consummation may be unduly delayed and the potential resulting disruptions to Edgewater’s businesses and relationships;

 

   

the challenges posed by the combination of two business enterprises such as Edgewater and Alithya, including the possibility that the anticipated cost savings and synergies and other benefits sought to be obtained from the transactions might not be achieved in the time frame contemplated or at all, or the other numerous risks and uncertainties which could adversely affect New Alithya’s operating results; and

 

   

the risks of the type and nature described under the sections entitled “Risk Factors” beginning on page 29 and “Cautionary Note Regarding Forward-Looking Statements” beginning on page 56.

After considering the foregoing potentially positive and potentially negative factors, the Edgewater board of directors unanimously concluded, in the board’s business judgment, that the potentially positive factors relating to the arrangement agreement and the transactions contemplated thereby (including the merger) substantially outweighed the potentially negative factors.

The foregoing discussion of the information and factors considered by the Edgewater board of directors is not exhaustive but rather is intended to reflect the principal material factors considered by the Edgewater board of directors in its consideration of the transactions. In view of the complexity, and the large number, of the factors considered, the Edgewater board of directors, both individually and collectively, did not find it practicable to and did not attempt to quantify or assign any relative or specific weight to the various factors. Rather, the Edgewater board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of the Edgewater board of directors may have given different weights to different factors.

The foregoing discussion of the information and factors considered by the Edgewater board of directors is forward-looking in nature. This information should be read in light of the factors described under the section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 56.

Edgewater and Alithya Unaudited Prospective Financial Information

Neither Alithya nor Edgewater, as a matter of course, makes public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions

 

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and estimates. However, in connection with the evaluation of the arrangement agreement and the transactions contemplated therein (including the merger), each of Alithya and Edgewater made available to the other party and its respective financial advisors certain unaudited prospective financial information on a stand-alone, pre-transaction basis.

Furthermore, as discussed below and under “—Opinion of Edgewater’s Financial Advisor” beginning on page 73, William Blair reviewed certain internal financial and operating information with respect to the business, operations and prospects of Alithya and Edgewater, including, with respect to Alithya, certain unaudited, management prepared forecasts, projections and estimates (the “Alithya Projections”) and, with respect to Edgewater, certain unaudited, management prepared forecasts, projections and estimates (the “Edgewater Projections”). The Alithya Projections and Edgewater Projections were used for the purposes of generating projected New Alithya income statements. The Alithya Projections and Edgewater Projections were made available to the Edgewater board of directors in connection with the presentation of the financial analyses of William Blair. The inclusion of information about the Edgewater Projections and the Alithya Projections in this prospectus/proxy statement should not be regarded as an indication that any of Alithya, Edgewater, their respective affiliates, officers, directors, employees, advisors or other representatives or any other recipient of this information considered, or now considers, the Edgewater projections or the Alithya projections to be predictive of actual future results. The information about the Edgewater Projections and the Alithya Projections included in this prospectus/proxy statement is presented solely to give Edgewater stockholders access to the information that was made available to Edgewater’s financial advisor and/or the Edgewater board of directors, as applicable. Inclusion of the summary information below regarding the financial forecasts in this prospectus/proxy statement is not intended to influence a stockholder’s decision whether to vote for the transactions.

The Edgewater Projections and the Alithya Projections are each subjective in many respects and thus subject to interpretation. While presented with numeric specificity, and considered reasonable by management at the time they were prepared, the Edgewater Projections and the Alithya Projections reflect numerous estimates and assumptions with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to Alithya’s and Edgewater’s businesses, including, but not limited to, the launch of products and services currently in Edgewater’s and Alithya’s respective pipelines, the commercial performance of certain products and services, and cost savings unrelated to the transaction which may ultimately prove to be incorrect; and the factors listed in this prospectus/proxy statement under the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are beyond Alithya’s or Edgewater’s control. Furthermore, other than with respect to certain adjustments made by Edgewater management, the Alithya Projections were not internally prepared or adopted by Edgewater management. The information contained in the Alithya Projections was prepared at the time for purposes unrelated to the management of Alithya’s or Edgewater’s business and was based on assumptions that may no longer be accurate. Many of the assumptions reflected in the Edgewater Projections and the Alithya Projections are subject to change and none of the Edgewater Projections or the Alithya Projections reflect revised prospects for Edgewater’s or Alithya’s business, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such financial information was prepared. Neither Edgewater nor Alithya has updated, nor does either of them intend to update or otherwise revise, the Edgewater Projections or the Alithya Projections, except as required by law. There can be no assurance that the results reflected in any of the Edgewater Projections or the Alithya Projections will be realized or that actual results will not materially vary from the Edgewater Projections or the Alithya Projections, respectively. In addition, since the Edgewater Projections and the Alithya Projections cover multiple years, such information by its nature becomes less predictive with each successive year. Therefore, the inclusion of the Edgewater Projections and the Alithya Projections in this prospectus/proxy statement should not be relied on as predictive of actual future events nor construed as financial guidance.

Edgewater stockholders are urged to review Edgewater’s most recent SEC filings for a description of risk factors with respect to Edgewater’s businesses. You should read the section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 56 for additional information regarding the risks inherent in

 

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forward-looking information such as the financial projections and “Where You Can Find More Information” beginning on page 236.

The Edgewater Projections and the Alithya Projections were not prepared with a view toward public disclosure or for complying with the published guidelines of the SEC or any Canadian securities regulators regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, U.S. GAAP or IFRS. Neither Edgewater’s independent registered public accounting firm, nor Alithya’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the Edgewater Projections or the Alithya Projections, nor have they expressed any opinion or any other form of assurance on the Edgewater Projections or the Alithya Projections or the achievability of the results reflected in the Edgewater Projections or the Alithya Projections, and they assume no responsibility for the Edgewater Projections and the Alithya Projections. The BDO USA, LLP reports incorporated by reference into this prospectus/proxy statement relate to Edgewater’s historical financial information, and the Raymond Chabot Grant Thornton LLP reports included in this prospectus/proxy statement relate to Alithya’s historical financial information. These reports do not extend to the prospective financial information and should not be read to do so. Certain of the financial projections set forth herein, including non-GAAP or non-IFRS net income and Adjusted EBITDA, may be considered non-GAAP or non-IFRS financial measures, as the case may be. Non-GAAP and non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP and IFRS, respectively, and non-GAAP and non-IFRS financial measures as used by Edgewater and Alithya, respectively, may not be comparable to similarly titled amounts used by other companies. Quantitative reconciliations of the prospective non-GAAP and non-IFRS financial measures included herein to the most directly comparable U.S. GAAP and IFRS financial measures, respectively, have not been provided. Not all of the information necessary for quantitative reconciliations is available to Edgewater and Alithya at this time without unreasonable efforts. This is due primarily to variability and difficulty in making accurate detailed forecasts and projections. Accordingly, we do not believe that reconciling information for such projected figures would be meaningful.

For the reasons described above, readers of this prospectus/proxy statement are cautioned not to unduly rely on the Edgewater Projections or the Alithya Projections. Neither Alithya nor Edgewater has made any representation to Edgewater or Alithya, as applicable, or any other person in the arrangement agreement or otherwise concerning any of the Edgewater Projections or the Alithya Projections.

The Edgewater Projections and the Alithya Projections were prepared based on each of Alithya and Edgewater, respectively, as a stand-alone company. Such forecasts do not take into account the transactions, including the impact of negotiating or executing the transactions, the expenses that may be incurred in connection with consummating the transactions, the potential synergies that may be achieved by the combined company as a result of the transactions, the effect of any business or strategic decision or action that has been or will be taken as a result of the arrangement agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the arrangement agreement had not been executed but which were instead altered, accelerated, postponed or not taken in anticipation of the transactions.

The following tables present a summary of the Edgewater Projections and the Alithya Projections. These financial forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Alithya or Edgewater. Important factors that may affect actual results and cause these financial forecasts not to be achieved include, but are not limited to, risks and uncertainties relating to Alithya’s and Edgewater’s respective businesses (including the ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, the regulatory environment, general business and economic conditions, future acquisition and disposition activity and other factors described or referenced under “Cautionary Note Concerning Forward-Looking Statements” beginning on page 56. In addition, the forecasts also reflect assumptions that are subject to change and do not reflect revised prospects for Alithya’s or Edgewater’s businesses, changes in general business or economic conditions, or any other transaction or event

 

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that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. Accordingly, there can be no assurance that these financial forecasts will be realized or that Alithya’s or Edgewater’s future financial results will not materially vary from these financial forecasts.

No one has made or makes any representation to any stockholder or anyone else regarding the information included in the financial forecasts set forth below. Readers of this prospectus/proxy statement are cautioned not to rely on the forecasted financial information. Some or all of the assumptions which have been made regarding, among other things, the timing of certain occurrences or impacts, may have changed since the date such forecasts were made. Neither Edgewater nor Alithya has updated, and neither of them intends to update or otherwise revise, the financial forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions on which such forecasts were based are shown to be in error. Alithya’s and Edgewater’s projections are based on their respective management’s assumptions at the time. While management of Edgewater and Alithya believed such assumptions to be reasonable at the time, there can be no assurance that matters would develop as assumed and actual results may differ substantially.

Neither Edgewater’s nor Alithya’s management has any obligation to update any such assumptions. Accordingly, no undue reliance should be placed on any such assumptions or forecasts.

Edgewater

 

     Historical     Projected  
(U.S.$ in Millions)    CY
2016
    CY
2017
    CY
2018
    CY 2019      CY 2020  

Revenue

     $126.5       $111.8       $115.1       $121.9        $130.8  

Net Income

     ($2.8     ($29.2     ($3.8     $5.0        $7.3  

Plus: Taxes

     $5.0       $19.6       $0.0       $0.6        $0.9  

Plus: Interest Expense

     2.3       0.4       0.2       0.2        0.2  

Plus: Depreciation & Amortization

     4.2       3.2       2.5       1.9        1.3  

Plus: Transaction Expenses

     —         —         3.5       —          —    

Plus: Other (Income) Expenses

     0.0       (0.1     —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Reported EBITDA

     8.7       (6.1     2.4       7.7        9.7  

Adjustments

     (1.0     10.2       1.0       0.1        0.0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

     $7.7       $4.1       $3.4       $7.8        $9.7  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Alithya

 

     Pro Forma Estimated     Projected  
(U.S.$ in Millions)    CY 2017     CY 2018     CY 2019      CY 2020  

Revenue

     $157.9       $164.4       $174.0        $195.4  

Net Income

     ($3.1     ($1.3     $1.9        $4.5  

Plus: Taxes

     0.9       (0.5     0.7        1.6  

Plus: Interest Expense

     1.4       1.4       1.4        1.4  

Plus: Depreciation & Amortization

     5.9       6.0       6.0        6.0  

Plus: Transaction Expenses

     —         2.0       —          —    

Plus: Other (Income) Expenses

     0.4       —         —          —    
  

 

 

   

 

 

   

 

 

    

 

 

 

Reported EBITDA

     $5.5       $7.6       $10.0        $13.5  

Adjustments

     2.0       1.0       —          —    
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

     $7.5       $8.6       $10.0        $13.5  
  

 

 

   

 

 

   

 

 

    

 

 

 

Note: Exchange rate as of March 12, 2018 was $1.00 = U.S.$0.78. The projected financials were prepared under IFRS.

 

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Opinion of Edgewater’s Financial Advisor

William Blair was retained to act as the financial advisor to the Edgewater board of directors to render certain investment banking services, including soliciting offers for the possible sale of Edgewater, which ultimately included the proposed transaction with Alithya, as set forth in the arrangement agreement. As part of its engagement, the Edgewater board of directors requested the opinion of William Blair as to the fairness, from a financial point of view, to the holders of the outstanding shares of Edgewater Common Stock, of the Aggregate Consideration (as defined below) to be received by the Edgewater stockholders pursuant to the terms and subject to the conditions set forth in the arrangement agreement. For purposes of this analysis, the “Aggregate Consideration” is comprised of (i) the special dividend of approximately U.S.$20.5 million (the “Dividend”) to be declared by Edgewater to its stockholders of record immediately prior to the consummation of the transactions contemplated by the arrangement agreement, subject to the adjustment as set forth in the arrangement agreement, and (ii) the ratio at which each share of Edgewater Common Stock will be converted into New Alithya Subordinate Voting Shares, subject to adjustment as set forth in the arrangement agreement, in connection with the merger (the “Exchange Ratio”). On March 15, 2018, William Blair delivered its oral opinion to the Edgewater board of directors and subsequently confirmed in writing, that, as of that date and based upon and subject to the assumptions, qualifications and limitations stated in its opinion, the Aggregate Consideration to be received by the Edgewater stockholders pursuant to the transactions contemplated by the arrangement agreement, is fair, from a financial point of view, to such stockholders.

The opinion described above delivered to the Edgewater board of directors was reviewed and approved by William Blair’s Fairness Opinion Committee. William Blair has consented to the inclusion in this prospectus/proxy statement of its opinion and the description of its opinion appearing under this heading “Opinion of Edgewater’s Financial Advisor.”

THE FULL TEXT OF WILLIAM BLAIR’S WRITTEN OPINION, DATED MARCH 15, 2018, IS ATTACHED AS ANNEX E TO THIS PROSPECTUS/PROXY STATEMENT AND INCORPORATED INTO THIS PROSPECTUS/PROXY STATEMENT BY REFERENCE. YOU ARE URGED TO READ THE ENTIRE OPINION CAREFULLY AND IN ITS ENTIRETY TO LEARN ABOUT THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY WILLIAM BLAIR IN RENDERING ITS OPINION. WILLIAM BLAIR’S OPINION WAS DIRECTED SOLELY TO THE EDGEWATER BOARD OF DIRECTORS FOR ITS USE AND BENEFIT IN EVALUATING THE FAIRNESS OF THE TRANSACTIONS CONTEMPLATED BY THE ARRANGEMENT AGREEMENT. WILLIAM BLAIR’S OPINION RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE AGGREGATE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF EDGEWATER COMMON STOCK IN THE TRANSACTIONS PURSUANT TO THE ARRANGEMENT AGREEMENT, DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTIONS, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY EDGEWATER STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE TRANSACTIONS. WILLIAM BLAIR DID NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY EDGEWATER TO ENGAGE IN THE TRANSACTIONS. THE FOLLOWING SUMMARY OF WILLIAM BLAIR’S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS ANNEX E.

In connection with William Blair’s review of the transactions and the preparation of its opinion, William Blair examined or discussed, among other things:

 

   

a draft of the arrangement agreement dated March 14, 2018, and William Blair assumed that the arrangement agreement would not differ from such draft in any material respects;

 

   

audited historical financial statements of Edgewater for the fiscal years ended December 31, 2014, 2015 and 2016;

 

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the unaudited financial statements of Edgewater for the fiscal year ended December 31, 2017;

 

   

the audited financial statements of Alithya for the fiscal years ended March 31, 2015, 2016 and 2017;

 

   

the unaudited financial statements of Alithya for the months ended April 30, 2017, May 31, 2017, June 30, 2017, July 31, 2017, August 31, 2017, September 30, 2017, October 31, 2017, November 30, 2017, and December 31, 2017;

 

   

the draft due diligence report issued by KPMG LLP dated March 8, 2018, reflecting Alithya’s financial results at and for the twelve months ended September 30, 2017;

 

   

certain internal business operating and financial information and forecasts of Edgewater and Alithya prepared by the senior management of Edgewater and Alithya, respectively, which we refer to as the Forecasts and which are described above under “—Edgewater and Alithya Unaudited Prospective Financial Information”;

 

   

the pro forma impact of the transactions on the earnings per share of Edgewater based on certain pro forma financial information prepared by senior management of Edgewater and Alithya;

 

   

information regarding the amount and timing of cost savings and related expenses which senior management of Edgewater and Alithya expect will result from the transactions, which we refer to as the Expected Synergies;

 

   

information regarding the strategic, financial and operational benefits anticipated from the transactions and the prospects of Edgewater (with or without the transactions) prepared by the senior management of Edgewater;

 

   

information regarding publicly available financial terms of certain other business combinations William Blair deemed relevant;

 

   

the financial position and operating results of Edgewater compared with those of certain other publicly traded companies William Blair deemed relevant;

 

   

current and historical market prices and trading volumes of the Edgewater Common Stock; and

 

   

certain other publicly available information about Edgewater and Alithya.

William Blair also held discussions with members of the senior management of Edgewater to discuss the foregoing, considered other matters that it deemed relevant to its inquiry, and took into account the accepted financial and investment banking procedures and considerations that it deemed relevant. In connection with William Blair’s engagement, William Blair was requested to approach, and subsequently held discussions with, third parties to solicit indications of interest in a possible acquisition of Edgewater.

In rendering its opinion, William Blair assumed and relied, without any independent verification, upon the accuracy and completeness of all the information examined by or otherwise reviewed or discussed with William Blair for purposes of this opinion including, without limitation, the Forecasts and the Expected Synergies provided by the senior management of Edgewater and Alithya, as applicable. The Expected Synergies provided by senior management of Edgewater consisted of between U.S.$8.7 million and U.S.$11.5 million of total estimated net synergies on an annual basis, pro forma for calendar year 2017 and projected for calendar years 2018 to 2020, primarily as a result of the reduction of corporate overhead expense. William Blair has not made or obtained an independent valuation or appraisal of the assets, liabilities or solvency of Edgewater or Alithya. William Blair has been advised by the senior management of Edgewater and Alithya that the Forecasts and the Expected Synergies examined by William Blair have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of Edgewater and Alithya, as the case may be. In that regard, William Blair assumed, with the consent of the Edgewater board of directors, that (i) the Forecasts will be achieved and the Expected Synergies will be realized in the amounts and at the times contemplated thereby and (ii) all material assets and liabilities (contingent or otherwise) of Edgewater and

 

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Alithya are as set forth in the financial statements of Edgewater and Alithya, as applicable, or other information made available to William Blair. William Blair did not express an opinion with respect to the Forecasts or the Expected Synergies or the estimates and judgments on which they are based. William Blair also assumed that any adjustments to the Aggregate Consideration will be made in accordance with the terms of the arrangement agreement, will not be material in amount or significance, and will not otherwise impact William Blair’s opinion. William Blair did not consider and expressed no opinion as to the amount or nature of the compensation to any of Edgewater’s officers, directors or employees (or any class of such persons) relative to the compensation to Edgewater’s other stockholders. William Blair’s opinion was based upon economic, market, financial and other conditions existing on, and other information disclosed to William Blair as of, the date of its opinion. It should be understood that, although subsequent developments may affect William Blair’s opinion, William Blair does not have any obligation to update, revise or reaffirm its opinion. William Blair relied as to all legal matters on advice of counsel to Edgewater, and assumed that the transactions will be completed on the terms described in the draft arrangement agreement dated as of March 14, 2018, without any amendment or waiver of any material terms or conditions by Edgewater.

William Blair expressed no opinion as to the price at which the Edgewater Common Stock and the New Alithya Subordinate Voting Shares will trade at any future time or as to the effect of the transactions on the trading price of the Edgewater Common Stock or the New Alithya Subordinate Voting Shares. In addition, William Blair expressed no opinion as to the reduction in voting power for Edgewater’s stockholders as a result of the Alithya Multiple Voting Common Shares to be issued to former shareholders of Alithya. William Blair noted for the Edgewater board of directors that Edgewater’s financial statements were prepared under U.S. GAAP and Alithya’s financial statements were prepared under IFRS and, as a result, the financial statements of the two entities may not be directly comparable. William Blair expressed no opinion as to the impact of the conversion of Edgewater’s financial statements from U.S. GAAP to IFRS.

William Blair’s investment banking services and its opinion were provided for the use and benefit of the Edgewater board of directors in connection with their consideration of the transactions. William Blair’s opinion was limited to the fairness, from a financial point of view, of the Aggregate Consideration to be received by Edgewater’s stockholders in connection with the transactions, and William Blair did not address the merits of the underlying decision by Edgewater to engage in the transactions and its opinion does not constitute a recommendation to any Edgewater stockholder as to how such stockholder should vote with respect to the transactions.

The following is a summary of the material analyses performed and material factors considered by William Blair in connection with its opinion. William Blair performed certain procedures, including each of the analyses described below, and reviewed with the Edgewater board of directors the assumptions upon which such analyses were based, as well as other factors. Although the summary does not purport to describe all of the analyses performed or factors considered by William Blair in this regard, it does set forth those considered by William Blair to be material in arriving at its opinion. The order of the summaries of analyses described below does not represent the relative importance or weight given to those analyses by William Blair. The analyses summarized below include information presented in a tabular format. In order to fully understand the analyses performed by William Blair, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses performed by William Blair. Considering the data set forth in the tables below without considering the full narrative description of the analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the analyses performed by William Blair.

Contribution Analysis

William Blair calculated the relative contributions of Edgewater and Alithya to New Alithya’s combined revenue, pre-synergies EBITDA and Adjusted Business Unit EBITDA for calendar year 2017, based upon historical financial information and the Forecasts, and compared such contributions to the pro forma equity

 

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ownership in New Alithya. William Blair calculated certain values implied by such relative contributions. The following table summarizes the results of this analysis:

 

     Edgewater
Contribution
    Alithya
Contribution
 

Revenue

     41     59

EBITDA (Pre-Synergies)

     36     64

Adjusted Business Unit EBITDA

     43     57

New Alithya Equity Ownership

     42     58

William Blair noted that the equity ownership of Edgewater’s stockholders in New Alithya is within the range of Edgewater’s contribution to New Alithya with respect to the financial metrics indicated above.

Selected Precedent Transactions Analysis

William Blair performed an analysis of selected recent business combinations consisting of transactions announced and closed subsequent to January 1, 2014, and focused primarily on publicly traded IT and staffing services companies with publicly disclosed transaction values deemed to be most relevant by William Blair based on its professional judgment. William Blair’s analysis was based solely on publicly available information regarding such transactions. The selected transactions were not intended to be representative of the entire range of possible transactions in the respective industries. The fifteen transactions examined were (identified by target/acquirer and closing date):

 

   

LiquidHub, Inc. / Capgemini SE (February 5, 2018 (date of transaction announcement))

 

   

OnX Enterprise Solutions Ltd. / Cincinnati Bell Inc. (October 2, 2017)

 

   

NCI, Inc. / H.I.G. Capital LLC (August 15, 2017)

 

   

Everett SpinCo, Inc. / Computer Science Corporation (March 31, 2017)

 

   

Appirio Inc. / Wipro Limited (November 23, 2016)

 

   

Collaborative Consulting, LLC / CGI Technologies and Solutions (November 3, 2016)

 

   

Kurt Salmon US Inc. / Accenture plc (November 2, 2016)

 

   

Merkle Inc. / Dentsu Aegis Network Ltd. (September 1, 2016)

 

   

UXC Limited / CSC Computer Sciences Australia (February 26, 2016)

 

   

Magnet 360, LLC / Mindtree Limited (February 25, 2016)

 

   

Proffice AB / Randstad Nordic AB (January 29, 2016)

 

   

Cellent AG / Wipro Cyprus Private Limited (December 8, 2015)

 

   

iGATE Corporation / Capgemini SE (July 1, 2015)

 

   

Atterro, Inc. / Advantage Resourcing America, Inc. (June 22, 2015)

 

   

Acentia, LLC / MAXIMUS Federal Services, Inc. (April 1, 2015)

William Blair reviewed the consideration paid in the selected transactions in terms of the enterprise value of such transactions as a multiple of revenue and adjusted earnings before interest, taxes, depreciation and amortization, which we refer to as adjusted EBITDA, for the last twelve month (“LTM”) period prior to the closing (or announcement, in the case of LiquidHub, Inc. / Capgemini SE) of the applicable transaction. William Blair considered the transaction multiples of revenue and adjusted EBITDA for Edgewater for the LTM period ended December 31, 2017 and compared them to the resulting range of transaction multiples of LTM

 

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revenue and LTM adjusted EBITDA for the selected transactions. Information regarding the multiples from William Blair’s analysis of selected transactions, to the extent meaningful, is set forth in the following tables:

 

     Implied
Transaction
Multiple
     IT Services Precedent Transaction
Valuation Multiples
 
   Min      Mean      Median      Max  

Multiple

              

Enterprise Value / LTM Revenue

     0.89x        0.32x        1.63x        1.63x        3.46x  

Enterprise Value / LTM Adjusted EBITDA

     23.9x        5.10x        11.50x        9.75x        21.10x  

 

     Implied
Transaction
Multiple
     Staffing Services Precedent Transaction
Valuation Multiples
 
   Min      Mean      Median      Max  

Multiple

              

Enterprise Value / LTM Revenue

     0.89x        0.15x        0.29x        0.29x        0.42x  

Enterprise Value / LTM Adjusted EBITDA

     23.9x        3.80x        8.15x        8.15x        12.50x  

William Blair noted that the implied valuation multiple of enterprise value / LTM revenue for Edgewater based on the transactions was within the range of multiples of the selected IT services transactions and above the range of multiples of the selected staffing services transactions, and the implied valuation multiple of enterprise value / LTM adjusted EBITDA for Edgewater based on the transactions was above the range of multiples of the selected IT services and staffing services transactions.

Although William Blair analyzed the multiples implied by the selected transactions and compared them to the implied transaction multiples of Edgewater, Alithya and New Alithya, none of these transactions or associated companies is identical to the transactions or Edgewater. Accordingly, any analysis of the selected transactions necessarily involves complex considerations and judgments concerning the differences in financial and operating characteristics, parties involved and terms of their transactions and other factors that would necessarily affect the implied value of Edgewater versus the values of the companies in the selected transactions.

Selected Publicly Traded Companies Analysis

William Blair reviewed and compared certain financial information relating to Edgewater and Alithya, as well as expected financial information concerning New Alithya, both with and without giving effect to expected synergies, to corresponding financial information, ratios and public market multiples for a selected group of publicly-traded companies sharing a similar company profile to New Alithya. Although none of the selected companies was directly comparable to New Alithya, the companies listed were selected because they are publicly traded companies focused on IT services and staffing services that, for purposes of this analysis, may be deemed reasonably comparable to New Alithya. The IT services companies selected by William Blair were: (i) Accenture Plc; (ii) Cognizant Technology Solutions Corp.; (iii) Infosys Ltd.; (iv) MindTree Ltd.; (v) Perficient, Inc.; (vi) Persistent Systems Limited; (vii) Syntel, Inc.; (viii) Tech Mahindra Ltd.; (ix) Virtusa Corporation; and (x) Wipro Limited. The staffing services companies selected by William Blair were: (i) Kforce Inc. and (ii) ManpowerGroup Inc.

Among the information William Blair considered were revenue and adjusted EBITDA. In calculating adjusted EBITDA, William Blair adjusted for certain non-cash items, including stock-based compensation, acquisitions and other non-recurring items. William Blair considered the enterprise value for each company (including Edgewater, Alithya and New Alithya), which William Blair calculated as the equity value, plus total debt, minority interest and preferred stock, less cash and cash equivalents. The equity value of each of Edgewater, Alithya and New Alithya was calculated using a share price of U.S.$6.26 per share, the closing stock price of Edgewater on March 9, 2018, and the equity value of each selected public company was calculated using the closing stock price as of March 9, 2018, multiplied by the fully diluted shares outstanding (the common stock outstanding and in-the-money common stock equivalents calculated using the treasury method). Enterprise

 

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values were then divided by (i) the revenue and adjusted EBITDA for each company for the LTM period ended December 31, 2017; and (ii) the projected revenue and adjusted EBITDA for each company for calendar year 2018, in each case to arrive at certain multiples. The operating results and the corresponding derived multiples for each of the selected public companies were based on each company’s most recent available publicly disclosed financial information and closing share prices as of March 9, 2018. The implied enterprise value of Edgewater is based on the equity value implied by the Aggregate Consideration plus the total debt, less cash and cash equivalents projected by Edgewater senior management as of March 8, 2018.

William Blair then compared the multiples implied for Edgewater based on the transactions to the range of trading multiples for the aggregate group of selected public companies. Information regarding the multiples from William Blair’s analysis of selected publicly traded companies is set forth in the following tables.

 

     Implied Valuation
Multiple
     Selected IT Services
Public Company
Valuation Multiples
 
     Edgewater      Alithya      New Alithya
(Pre Synergies)
     New Alithya
(Post Synergies)
     Min      Median      Max  

Enterprise Value / Revenue

                 

LTM Revenue

     0.89x        0.87x        0.90x        0.90x        1.67x        2.30x        3.30x  

CY 2018E Revenue

     0.87x        0.83x        0.87x        0.87x        1.61x        2.15x        3.13x  

Enterprise Value / Adjusted EBITDA

                 

LTM Adjusted EBITDA

     23.9x        18.6x        21.0x        11.8x        9.9x        13.4x        18.6x  

CY 2018E Adjusted EBITDA

     29.4x        16.0x        20.2x        10.3x        10.0x        11.4x        18.8x  

 

     Implied Trading
Multiple
     Selected Staffing Services
Public Company
Valuation Multiples
 
     Edgewater      Alithya      New Alithya
(Pre Synergies)
     New Alithya
(Post Synergies)
     Min      Median      Max  

Enterprise Value / Revenue

                 

LTM Revenue

     0.89x        0.87x        0.90x        0.90x        0.40x        0.52x        0.64x  

CY 2018E Revenue

     0.87x        0.83x        0.87x        0.87x        0.37x        0.50x        0.62x  

Enterprise Value / Adjusted EBITDA

                 

LTM Adjusted EBITDA

     23.9x        18.6x        21.0x        11.8x        9.5x        9.8x        10.2x  

CY 2018E Adjusted EBITDA

     29.4x        16.0x        20.2x        10.3x        8.6x        9.2x        9.7x  

William Blair noted that, with respect to the enterprise value / revenue valuation multiple, all of the analyzed implied valuation multiples for Edgewater and New Alithya based on the transactions were below the range of multiples of the selected IT services public companies and above the range of multiples of the selected staffing services public companies. William Blair also noted that, with respect to the enterprise value / adjusted EBITDA valuation multiples, all of the analyzed implied valuation multiples for Edgewater and New Alithya were within or above the range of multiples for all of the selected IT services and staffing services public companies.

Although William Blair compared the trading multiples of the selected public companies to those implied for Edgewater and New Alithya, none of the selected public companies is identical to Edgewater or New Alithya. Accordingly, any analysis of the selected publicly traded companies necessarily involved complex considerations and judgments concerning the differences in financial and operating characteristics and other factors that would necessarily affect the analysis of trading multiples of the selected publicly traded companies.

 

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Discounted Cash Flow Analysis

William Blair utilized the Forecasts to perform a discounted cash flow analysis of the projected future free cash flows for Edgewater and Alithya for the fiscal years ending December 31, 2018, through December 31, 2020, adjusted for income taxes at an assumed rate of approximately 28%. Using the discounted cash flow methodology, William Blair calculated the present values of the projected free cash flows for Edgewater and New Alithya. In this analysis, William Blair estimated terminal multiples of 2020 adjusted EBITDA ranging from 8.0x to 12.0x and assumed a discount rate of 12.4%, based on discount rate ranges of 10.9% to 13.9% and an application of the capital asset pricing model. The terminal multiples range was derived from the relevant multiple ranges of the selected public companies analysis and selected precedent transaction analysis. The discount rate range was derived based upon a weighted average cost of capital analysis using the capital asset pricing model.

William Blair aggregated the present value of the free cash flows over the applicable forecast period with the present value of the range of terminal values to arrive at an implied enterprise value range. William Blair derived a range of diluted equity value per share by deducting Edgewater’s and New Alithya’s projected net debt as of December 31, 2017 from the resulting enterprise value range and by dividing by Edgewater’s and New Alithya’s total diluted shares outstanding, based on information provided by management of Edgewater and Alithya. William Blair noted that the equity value implied by the discounted cash flow analysis, subject to the assumptions set forth above, ranged from U.S.$4.95 per share to U.S.$6.43 per share for Edgewater and from U.S.$6.92 per share to U.S.$8.92 per share for New Alithya.

Implied Future Share Price Analysis

William Blair utilized the Forecasts to analyze the present value of the implied future share price of New Alithya in 2020. In this analysis, William Blair estimated enterprise value / EBITDA multiples ranging from 8.0x to 12.0x, based on select precedent transactions and public company multiples, and assumed a discount rate of 10.9% to 13.9%. William Blair calculated the implied 2020 share price based on the projected standalone share counts for each of Edgewater and Alithya to estimate a projected share count for New Alithya. The range of implied per share equity values for Edgewater indicated by this analysis were approximately U.S.$5.14 to U.S.$6.57 per share, as compared to U.S.$5.29 to U.S.$7.38 for New Alithya, excluding the impact of the Dividend and U.S.$6.71 to U.S.$8.80 per share, including the impact of the Dividend.

General

This summary is not a complete description of the analysis performed by William Blair but contains the material elements of the analysis. The preparation of an opinion regarding fairness is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. The preparation of an opinion regarding fairness does not involve a mathematical evaluation or weighing of the results of the individual analyses performed, but requires William Blair to exercise its professional judgment, based on its experience and expertise, in considering a wide variety of analyses taken as a whole. Each of the analyses conducted by William Blair was carried out in order to provide a different perspective on the financial terms of the transactions and add to the total mix of information available. The analyses were prepared solely for the purpose of William Blair providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which securities actually may be sold. William Blair did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion about the fairness of the consideration to be received by Edgewater’s stockholders. Rather, in reaching its conclusion, William Blair considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. William Blair did not place particular reliance or weight on any particular analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, William Blair believes

 

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that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, may create an incomplete view of the evaluation process underlying its opinion. No company or transaction used in the above analyses as a comparison is identical or directly comparable to the transactions or Edgewater. In performing its analyses, William Blair made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by William Blair are not necessarily indicative of future actual values and future results, which may be significantly more or less favorable than suggested by such analyses.

William Blair has been engaged in the investment banking business since 1935. William Blair continually undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations, estate and gift tax valuations and similar transactions. In the ordinary course of its business, William Blair may from time to time trade Edgewater’s securities for its own account and for the accounts of customers, and accordingly may at any time hold a long or short position in such securities.

Edgewater hired William Blair based on its qualifications and expertise in providing financial advice to technology companies and its reputation as a nationally recognized investment banking firm as well as its knowledge of Edgewater. Pursuant to a letter agreement dated May 31, 2017, a fee of U.S.$400,000 became payable to William Blair upon delivery of its fairness opinion, which amount will be credited against any fee payable to William Blair upon closing of the transactions. Under the terms of the letter agreement, as amended on February 19, 2018, William Blair would be entitled to receive a minimum of U.S.$2.1 million upon completion of the transactions. Edgewater also has agreed to reimburse William Blair for specified out-of-pocket expenses (including reasonable fees and expenses of its counsel and other independent experts retained by William Blair) incurred by it in connection with its services and will indemnify William Blair against potential liabilities arising out of its engagement, including certain liabilities under the U.S. federal securities laws.

Interests of Certain Persons in the Merger

In considering the recommendation of the Edgewater board of directors with respect to the merger, Edgewater stockholders should be aware that, in addition to their respective rights to receive the special cash dividend and New Alithya Subordinate Voting Shares on the same terms as are available to other Edgewater stockholders, certain executive officers and directors of Edgewater have certain interests in the merger that may be different from, or in addition to, the interests of Edgewater stockholders generally. The Edgewater board of directors was aware of these interests and considered them, among other matters, in approving the arrangement agreement and the merger and making its recommendation that the Edgewater stockholders approve the arrangement agreement and the merger. These interests are described below.

Treatment of Outstanding Edgewater Equity Awards

Each option to purchase a share of Edgewater Common Stock under the Edgewater equity incentive plans, whether vested or unvested, that is outstanding immediately prior to the merger effective time will be converted, on substantially the same terms and conditions as were applicable under such option before the merger effective time, into an option to acquire New Alithya Subordinate Voting Shares equal to the number of shares subject to the Edgewater option immediately prior to the merger effective time multiplied by the exchange ratio, at an exercise price per share equal to the exercise price per share applicable to such option immediately prior to the merger effective time divided by the exchange ratio, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

Each other equity award that is outstanding immediately prior to the merger effective time under Edgewater equity incentive plans will be converted, on substantially the same terms and conditions as were applicable under such equity award before the merger effective time, into a right to receive the number of New Alithya Subordinate Voting Shares equal to the number of shares subject to such equity award immediately prior to the merger effective time multiplied by the exchange ratio, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

 

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In addition, purchase rights under ongoing offerings under Edgewater’s employee stock purchase program will be converted into purchase rights to acquire New Alithya Subordinate Voting Shares on substantially the same terms and conditions as were applicable before the merger effective time.

Quantification of Payments. Under various stock option agreements pursuant to which stock option awards are made under the Edgewater equity incentive plans, Edgewater awards assumed by New Alithya will in many cases vest upon a change-in-control or in the event that, within six months following a change-in-control, the employment of an executive officer or the director relationship of a non-employee director is terminated by Edgewater without cause. The transactions will constitute a change-in-control for purposes of the Edgewater equity incentive plans.

Of the named executive officers of Edgewater, only Jeffrey Rutherford, Edgewater’s Chairman of the Board, Interim Chief Executive Officer and Interim President, holds unvested equity awards that may vest in connection with a change-in-control. Three of the five non-employee directors of Edgewater also hold unvested equity awards that may vest in connection with a change-in-control. However, neither Edgewater nor New Alithya anticipates being required to make any settlement payments in connection with such currently unvested equity awards that may vest in connection with the change-in-control which will occur upon the closing of the transactions because (i) all of the outstanding equity awards which are outstanding under Edgewater’s equity incentive plans will be exchanged under the terms of the arrangement agreement for new awards to be issued by New Alithya having substantially the same terms and conditions (subject to the exchange ratio between Edgewater Common Stock and New Alithya Subordinate Voting Shares) and (ii) those unvested options (which have a U.S.$6.45 exercise price per share of Edgewater Common Stock) may be out of the money at the time of the change-in-control based on the then current market price of Edgewater Common Stock.

Change-in-Control Agreements with Executive Officers

Sale Bonus Agreement for Jeffrey Rutherford: Pursuant to a sale bonus agreement between Edgewater and Jeffrey Rutherford, Edgewater’s Chairman of the Board, Interim Chief Executive Officer and Interim President, Mr. Rutherford is eligible to receive, subject to the terms and conditions set forth in the sale bonus agreement, a lump sum cash payment in an amount ranging from approximately U.S.$250,000 to approximately U.S.$1,250,000 based on the amount of the transaction equity value of Edgewater upon consummation of a business combination transaction involving Edgewater and Alithya. However, the sale bonus agreement provides that, if any payment or benefit Mr. Rutherford would receive pursuant to the agreement or otherwise, including, without limitation, accelerated vesting of any equity compensation (“Payment”), would (a) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (i) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (ii) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Mr. Rutherford’s receipt, on an after-tax basis, of the Payment that would result in no portion of Payment being subject to the Excise Tax.

Change-in-Control Agreement for Paul McNeice: Pursuant to the terms of a severance agreement between Edgewater and Paul McNeice, Edgewater’s Interim Chief Financial Officer, Mr. McNeice is entitled to receive, in certain circumstances, his annual base pay then in effect for a period of 12 months, in the event his employment were terminated by Edgewater without cause within one year following a change-in-control of Edgewater. Mr. McNeice’s current annual base salary is U.S.$220,000. The transactions will constitute a change-in-control for purposes of the severance agreement.

 

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Compensation and Benefits Pursuant to the Arrangement Agreement

Under the arrangement agreement New Alithya agrees, subject to applicable legal requirements, that:

 

   

employees of Edgewater or any subsidiary, including the Edgewater executive officers, who continue as employees of New Alithya or its subsidiaries after the completion of the transactions (the “Edgewater continuing employees”) will receive, during the one year period following the closing date, compensation and benefits that, with respect to each employee, are substantially similar in the aggregate to either, in New Alithya’s sole discretion, the compensation and benefits provided to similarly situated employees of Alithya or the compensation and benefits provided to such employee under the Edgewater benefit plans; and

 

   

Edgewater continuing employees who participate in the benefit plans of New Alithya (the “new plans”) will:

 

   

be credited with his or her years of service with Edgewater and its predecessors before the closing date, to the same extent as such employee was entitled to credit for such service under any similar plan in which such employee participated or was eligible to participate immediately prior to the closing date (excluding for purposes of eligibility, vesting and accrual under defined benefit pension plans and retiree medical plans); and

 

   

be eligible to participate in any and all new plans to the extent coverage under the plan is replacing comparable coverage under an Edgewater plan in which the employee participated immediately before the closing date, and (ii) for the purposes of each new plan providing medical, dental, pharmaceutical and/or vision benefits, New Alithya will use all reasonable endeavours to cause (1) all pre-existing condition exclusions and actively-at-work requirements of the new plan to be waived unless and to the extent the individual was subject to the conditions under the comparable Edgewater plan, and (2) any eligible expenses incurred by the employee and his or her covered dependents during the portion of the plan year of the Edgewater plan ending on the date that the employee’s participation in the corresponding new plan begins for the purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to the employee and his or her covered dependents for the applicable plan year as if the amounts had been paid in accordance with the new plan.

Further Actions

Certain current executive officers of Edgewater will become the executive officers of New Alithya. See “Information about New Alithya—Directors and Senior Management of New Alithya” beginning on page 199. As a result, these Edgewater executive officers may enter into new employment, equity compensation or other agreements with New Alithya for services to be provided following the completion of the transactions. As of the date of this prospectus/proxy statement, no such agreements have been entered into.

Indemnification; Directors’ and Officers’ Insurance

Edgewater directors and executive officers (among other persons) have rights to indemnification and directors’ and officers’ insurance that will survive the completion of the transactions.

Security Ownership of Certain Beneficial Owners and Management

“Beneficial ownership” is a term broadly defined by the SEC in Rule 13d-3 under the Exchange Act, and includes more than the typical form of stock ownership, that is, stock held in the person’s name. The term also includes what is referred to as “indirect ownership,” meaning ownership of shares as to which a person has or shares investment power. For purposes of the following tables, a person or group of persons is deemed to have “beneficial ownership” of any shares as of a given date that such person has the right to acquire within 60 days after such date.

 

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Edgewater

The following table sets forth, as of September 27, 2018, the name, address and holdings of each person, including any “group” as defined in Section 13(d)(3) of the Exchange Act, known by Edgewater to be the “beneficial owner” of more than 5% of the Edgewater Common Stock. The following table also sets forth, as of September 27, 2018, the number of shares of Edgewater Common Stock beneficially owned by each of Edgewater’s then current directors and the Chief Executive Officer, the Chief Financial Officer and the other three most highly compensated executive officers of Edgewater for its fiscal year ended December 31, 2017. The following table also sets forth, as of September 27, 2018, the number of shares of Edgewater Common Stock beneficially owned by all then current directors and executive officers of Edgewater as a group.

 

Principal Stockholders    Beneficial Ownership  
     Number of Shares of Edgewater
Common Stock
     Percent of
Total(1)
 

Ariel Investments, LLC(2)

200 E. Randolph Street, Suite 2900

Chicago, Illinois 60601

     2,789,490        19.1

GAMCO Investors, Inc., et al.(3)

One Corporate Center

Rye, New York 10580-1435

     2,130,894        14.6

Ancora Advisors, LLC(4)

6060 Parkland Boulevard, Suite 200

Cleveland, Ohio 44124

     1,488,749        10.2

Dimensional Fund Advisors LP(5)

Building One

6300 Bee Cave Road

Austin, Texas 78746

     1,023,885        7.0

Directors, Executive Officers and Other 5% Holders(6)

     

Russell Smith(7)

     226,162        1.5

Kristin Zaepfel(7)

     116,971       

Timothy R. Oakes(8)

     96,891       

Frederick DiSanto(7)

     85,964       

Jeffrey Rutherford(7)

     76,668       

Kurtis Wolf(7)

     66,930       

Stephen Bova(7)

     97,289       

Timothy Whelan(7)

     41,515       

Matthew Carpenter(7)

     27,936       

Paul McNeice(7)

     6,174       
  

 

 

    

 

 

 

All Directors and Executive Officers as a Group (10 persons)(7)

     842,500        5.5

 

*

Less than 1%.

(1)

The percentages shown with respect to any identified individual or group are calculated by dividing: (i) the sum of (a) the number of shares of common stock actually owned as of September 27, 2018 plus (b) the number of shares of common stock that may be acquired through the exercise of stock options within 60 days thereof (“Edgewater Currently Exercisable Options”) by (ii) the sum of 14,611,571 shares of common stock outstanding as of September 27, 2018, plus the amount referenced in clause (i)(b) for such individual or group.

(2)

These securities are owned by investment companies, trusts and accounts, to which Ariel Investments, LLC (“Ariel”) serves as investment advisor and manager with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange Act, Ariel is deemed to be a beneficial owner of such securities. Information set forth above and in this note (2) is based upon Ariel’s Schedule 13G/Amendment No. 10 filing with the SEC on July 10, 2018.

 

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(3)

These securities are owned by various institutional investors, which include Mario J. Gabelli, Gabelli Funds, LLC, GAMCO Asset Management, Inc., MJG Associates, Inc., GGCP, Inc., GAMCO Investors, Inc., Associated Capital Group, Inc. and Teton Advisors, Inc. (collectively “Gabelli”). Each of these entities holds certain of the shares for investment for one or more accounts over which it has shared, sole or both investment and/or voting power for its own account, or both. Information set forth above and in this note (3) is based on Gabelli’s Schedule 13D/Amendment No. 31 filing with the SEC on August 11, 2017.

(4)

These securities are owned by investment companies, trusts and accounts, to which Ancora Advisors, LLC (“Ancora”) serves as investment advisor and manager with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange Act, Ancora is deemed to be a beneficial owner of such securities; however, Ancora expressly disclaims the fact that it is, in fact, the beneficial owner of such securities, except to the extent of its pecuniary interest therein. Information set forth above and in this note (4) is based upon Ancora’s Schedule 13D/Amendment No. 5 filing with the SEC on March 8, 2017. Additionally, the reported securities also include shares owned by Mr. DiSanto, who is the Chairman and CEO of Ancora, who disclaims beneficial ownership, except to the extent of his pecuniary interest therein.

(5)

These securities are owned by investment companies, trusts and accounts, to which Dimensional Fund Advisors Inc. (“Dimensional”) serves as investment advisor and manager with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Exchange Act, Dimensional is deemed to be a beneficial owner of such securities; however, Dimensional expressly disclaims the fact that it is, in fact, the beneficial owner of such securities. Information set forth above and in this note (5) is based upon Dimensional’s Schedule 13G/Amendment No. 16 filing with the SEC on February 9, 2018.

(6)

The address of each of the directors and executive officers listed above is c/o Edgewater Technology, Inc., 200 Harvard Mill Square, Suite 210 (prior to October 1, 2018) or Suite 320 (beginning October 1, 2018), Wakefield, Massachusetts 01880.

(7)

Includes the following shares subject to Edgewater Currently Exercisable Options: Mr. Smith 175,000; Ms. Zaepfel 72,500; Mr. DiSanto 12,068; Mr. Rutherford 6,668; Mr. Bova 25,400; Mr. Whelan 25,400; Mr. Wolf 12,068; Mr. Carpenter 12,068; and Mr. McNeice 5,000. Mr. Di Santo disclaims ownership of the shares held by Ancora, except to the extent of his pecuniary interest therein. See note (4) above.

(8)

Mr. Oakes resigned as Edgewater’s Chief Financial Officer effective as of April 13, 2018, but is included in the above table because he was one of Edgewater’s three most highly compensated executive officers for its fiscal year ended December 31, 2017.

Alithya

The following table sets forth, as of September 27, 2018, the name, address and holdings of each person, including any “group” as defined in Section 13(d)(3) of the Exchange Act, known by Alithya to be the “beneficial owner” of more than 5% of Alithya Shares (including, without limitation, Alithya Common Shares issuable upon conversion of Alithya Multiple Voting Common Shares). The following table also sets forth, as of September 27, 2018, the number of Alithya Shares beneficially owned by each of Alithya’s then current directors and the Chief Executive Officer and the other two most highly compensated executive officers of Alithya as of September 27, 2018. The following table also sets forth, as of September 27, 2018, the number of Alithya Shares beneficially owned by all then current directors and executive officers of Alithya as a group.

 

Name of Beneficial Owner

  Alithya Multiple Voting
Common Shares
Beneficially Owned
    Alithya Common
Shares Beneficially
Owned
    Percent of Total
Alithya Shares(1)
    Percentage of
Total Voting
Power
 

Principal Shareholders

       

Services informatiques MixMédia inc.(2)

2875 Boulevard Laurier, bureau 1250

Québec, QC, G1V 2M2

    4,612,000         17.2     47.2

 

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Name of Beneficial Owner

  Alithya Multiple Voting
Common Shares
Beneficially Owned
    Alithya Common
Shares Beneficially
Owned
    Percent of Total
Alithya Shares(1)
    Percentage of
Total Voting
Power
 

Capital Régional et Coopératif Desjardins(3)

2, complexe Desjardins, bur. 1717
C.P. 760, succ. Desjardins
Montréal, QC H5B 1B8

      4,477,261       16.7     4.6

Industrielle Alliance(4)

1080, Grande Allée Ouest C.P. 1907, succursale Terminus
Québec, QC G1K 7M3

      3,732,133       14.0     3.8

Investissement Québec(5)

600, De La Gauchetière Street West, Suite 1500

Montréal, QC H3B 4L8

      3,665,731       13.7     3.8

TELUS Corporation(6)

510 W. Georgia St.
23rd Floor
Vancouver, BC V6B 0M3

      2,046,719       7.7     2.1

Fiducie Triaxions(7)

2870 rue de Chamonix

Montréal, QC H4R 3B7

    1,468,858         5.5     15.0

Directors and Executive Officers:(8)

       

Ghyslain Rivard(9)(12)

    4,962,819         18.6     50.8

Pierre Turcotte(10)(12)

    1,594,333         6.0     16.3

Paul Raymond(11)(12)

    1,306,377         4.9     13.4

François Côté

      69,711                    

Dana Ungar (Ades-Landy)

      5,675                    

Dvaipayan Ghose

      3,379                    

Claude Rousseau

      19,869                    

Robert Lamarre

      13,524                    

Marc Cantin

      8,300                    
 

 

 

   

 

 

   

 

 

   

 

 

 

Directors and Executive Officers as a Group

    7,863,529       120,458       29.9     80.6

 

*

Less than 1%.

(1)

The percentages shown with respect to any identified individual or group are calculated by dividing: (i) the sum of (a) the number of Alithya Shares actually owned as of September 27, 2018 plus (b) 788,160 Alithya Shares that may be acquired through the exercise of share options within 60 days thereof (“Alithya Currently Exercisable Options”) by (ii) the sum of 25,951,311 Alithya Shares outstanding as of September 27, 2018, plus the amount referenced in clause (i)(b) for such individual or group.

(2)

Services informatiques MixMédia inc. is the beneficial owner of 4,612,000 Alithya Multiple Voting Common Shares, which would be exchanged for 4,612,00 New Alithya Multiple Voting Shares upon closing of the transactions. This entity is indirectly majority-owned and controlled by Ghyslain Rivard, who has power to direct investments and/or power to vote the securities, but Mr. Rivard disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

(3)

Capital Régional et Coopératif Desjardins is the beneficial owner of 1,521,885 Class “A” Alithya Common Shares, 1,773,212 Class “A-CRCD” Alithya Common Shares and 1,182,164 Class “K” Alithya Common Shares, which would collectively be exchanged for 4,477,261 New Alithya Subordinate Voting Shares upon closing of the transactions.

(4)

Industrielle Alliance is the beneficial owner of 3,732,133 Class “A” Alithya Common Shares, which would be exchanged for 3,732,133 New Alithya Subordinate Voting Shares upon closing of the transactions, and holds a 30% interest in the share capital of Services informatiques MixMédia inc.

(5)

Investissement Québec is the beneficial owner of 1,521,885 Class “A” Alithya Common Shares, 1,637,204 Class “A-IQ” Alithya Common Shares and 506,642 Class “L” Alithya Common Shares, which would collectively be exchanged for 3,665,731 New Alithya Subordinate Voting Shares upon closing of the transactions.

 

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(6)

TELUS Corporation is the beneficial owner of 304,377 Class “A” Alithya Common Shares and 1,742,342 Class “J” Alithya Common Shares, which would collectively be exchanged for 2,046,719 New Alithya Subordinate Voting Shares upon closing of the transactions.

(7)

Fiducie Triaxions is the beneficial owner of 1,468,858 Alithya Multiple Voting Common Shares, which would be exchanged for 1,468,858 New Alithya Multiple Voting Shares upon closing of the transactions. Pierre Turcotte and Paul Raymond are two of the trustees of this entity. Mr. Turcotte has the power to direct the voting of the securities. Mr. Turcotte disclaims beneficial ownership of such shares, except to the extent of his pecuniary interests therein.

(8)

The address of each of the directors and executive officers listed above is c/o Alithya Group Inc., 700 De La Gauchetière Street West, Suite 2400, Montreal, Québec, Canada H3B 5M2.

(9)

Includes 4,612,000 Alithya Multiple Voting Common Shares held by Services informatiques MixMédia inc., which is indirectly majority-owned and controlled by Ghyslain Rivard, who has power to direct investments and/or power to vote the securities. Mr. Rivard disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

(10)

Includes 1,468,858 Alithya Multiple Voting Common Shares held by Fiducie Triaxions. Pierre Turcotte and Paul Raymond are two of the trustees of this entity and Mr. Turcotte has the power to direct the voting of the securities. Mr. Turcotte disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

(11)

Includes 763,160 Alithya Multiple Voting Common Shares that Paul Raymond may acquire through the exercise of share options within 60 days hereof. Also includes 436,477 Alithya Multiple Voting Common Shares held by Fiducie Direxions. Paul Raymond is one of the trustees of this entity and he has the power to direct the voting of the securities. Mr. Raymond disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

(12)

Upon consummation of the transactions, Messrs. Raymond, Turcotte and Rivard also intend to enter into a voting agreement, pursuant to which Messrs. Raymond, Turcotte and Rivard will agree to, among other things, vote all of the New Alithya Shares under their control in accordance with decisions made by a majority of them, subject to certain exceptions. See “Information about New Alithya—Principal Shareholders—Voting Agreement” beginning on page 211.

 

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New Alithya

The following table sets forth the name and estimated holdings of New Alithya Shares upon the consummation of the transactions by each person, including the expected new directors and executive officers of New Alithya and any “group” as defined in Section 13(d)(3) of the Exchange Act expected to be the “beneficial owner” of more than 5% of New Alithya Shares. The percentage of beneficial ownership is based on 46,812,097 New Alithya Shares estimated to be outstanding immediately following the consummation of the transactions (based on the number of basic shares outstanding and total exercisable options outstanding of Edgewater and Alithya as of September 27, 2018) and on such persons’ ownership of Edgewater Common Stock or Alithya Common Shares as of September 27, 2018.

For further information regarding the following persons’ beneficial holdings of Alithya Shares or Edgewater Common Stock, see the applicable footnotes in “—Edgewater” and “—Alithya” above.

 

Name of Beneficial Owner

   Alithya
Subordinate
Voting
Shares
Expected to
be
Beneficially
Owned
     Alithya
Multiple
Voting
Shares
Expected
to be
Beneficially
Owned
     Percentage
of Expected
Total

New Alithya
Shares
    Percentage
of
Expected
Total
Voting
Power
 

Principal Shareholders:

 

Services informatiques MixMédia inc.

        4,612,000        9.9     39.2

Capital Régional et Coopératif Desjardins

     4,477,261           9.6     3.8

Industrielle Alliance

     3,732,133           8.0     3.2

Investissement Québec

     3,665,731           7.8     3.1

Ariel Investments, LLC

     3,659,253           7.8     3.1

GAMCO Investors, Inc.

     2,795,307           6.0     2.4

Fiducie Triaxions

        1,468,858        3.1     12.5

Expected Directors and Executive Officers:

 

Ghyslain Rivard

        4,962,819        10.6     42.2

Pierre Turcotte

        1,594,333        3.4     13.6

Paul Raymond

        1,306,377        2.8     11.1

Russell Smith

     296,679           *       *  

Frederick DiSanto

     112,768           *       *  

Jeffrey Rutherford

     100,573           *       *  

François Côté

     69,711           *       *  

Claude Rousseau

     19,869           *       *  

Dana Ungar (Ades-Landy)

     5,675           *       *  

 

* Less than 1%.

Regulatory Approvals Required

The parties to the arrangement agreement have agreed to cooperate and use commercially reasonable efforts to obtain any waivers, consents, clearances and approvals required in connection with the consummation of the transactions under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other similar federal, provincial, state or foreign laws.

As of the date of this prospectus/proxy statement, Alithya and Edgewater have determined that no such waivers, consents, clearances and approvals are required in connection with the transactions. However, Alithya and Edgewater cannot assure you that government agencies or private parties will not initiate actions under applicable laws to challenge the transactions before or after they are completed. See “Risk Factors—Risks Related to the Transactions—Obtaining required approvals necessary to satisfy the conditions to the completion of the transactions may delay or prevent completion of the transactions, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the transactions” beginning on page 31.

 

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Applicable Canadian Securities Laws

Distribution and Resale of New Alithya Subordinate Voting Shares under Canadian Securities Laws

The New Alithya Subordinate Voting Shares received pursuant to the transactions will not be legended and may be resold through registered dealers in each of the provinces of Canada provided that (i) the trade is not a “control distribution” (as defined in National Instrument 45-102 – Resale of Securities); (ii) no unusual effort is made to prepare the market or create a demand for those securities; (iii) no extraordinary commission or consideration is paid in respect of that trade; (iv) if the selling security holder is an insider or officer of New Alithya (as defined under applicable Canadian securities legislation), the insider or officer has no reasonable grounds to believe that New Alithya is in default of that legislation; and (v) the issuer is and has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade. Each Alithya shareholder and option holder is urged to consult the holder’s professional advisors with respect to restrictions applicable to trades in New Alithya Subordinate Voting Shares under applicable Canadian securities legislation.

Upon completion of the transactions, New Alithya is expected to become a reporting issuer in the province of Ontario and intends to file a non-offering prospectus in the province of Québec for the purpose of becoming a reporting issuer in the province of Québec. As the New Alithya Subordinate Voting Shares are not currently listed on a stock exchange, unless and until such a listing is obtained, holders of New Alithya Subordinate Voting Shares may not have a market for their shares. New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX. It is a mutual condition to the completion of the transactions that the New Alithya Subordinate Voting Shares be approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the TSX (subject only to satisfaction of customary listing conditions).

Ongoing Canadian Reporting Obligations of New Alithya

Upon completion of the transactions, New Alithya is expected to become a reporting issuer in the province of Ontario and intends to file a non-offering prospectus in the province of Québec for the purpose of becoming a reporting issuer in the province of Québec and will be subject to Canadian continuous disclosure and other reporting obligations under applicable Canadian securities laws in those jurisdictions. Among these reporting obligations is the requirement that its reporting insiders file reports with respect to, among other things, their beneficial ownership of, or control or direction over, securities of New Alithya and their interests in, and rights and obligations associated with, related financial instruments. As New Alithya will not be a foreign issuer under applicable Canadian securities law, it will generally not be entitled under exemptions available to such foreign issuers to satisfy its Canadian reporting obligations through periodic and current reports that it files with the SEC to satisfy its U.S. reporting obligations but, as an “SEC Issuer” (as such term is defined under Canadian securities laws) may, in certain instances, rely on other available exemptions from its Canadian continuous disclosure and other reporting obligations when filing its periodic and current reports with the SEC to satisfy its U.S. reporting obligations.

Restrictions on Resales under U.S. Securities Laws

All New Alithya Subordinate Voting Shares received by Edgewater stockholders in the merger and Alithya shareholders in the arrangement will be freely tradable, except that New Alithya Subordinate Voting Shares received in the transactions by persons who are affiliates of New Alithya for purposes of Rule 144 under the Securities Act may be resold by them only in transactions permitted by Rule 144, or as otherwise permitted under the Securities Act. Persons who may be deemed affiliates of New Alithya generally include individuals or entities that control, are controlled by or are under common control with, New Alithya and may include the executive officers and directors of New Alithya as well as its principal shareholders.

 

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Accounting Treatment of the Transactions

Following completion of the transactions, Edgewater will be a wholly-owned subsidiary of New Alithya. However, as New Alithya was formed at the time of the transactions only for issuing equity instruments to permit the combination of Alithya and Edgewater, it will not be identified as the accounting acquirer of Edgewater. Alithya will be the accounting acquirer of Edgewater since its shareholders are expected to hold a majority of voting securities of New Alithya upon completion of the transactions. Accordingly, the acquisition of Edgewater by Alithya will be accounted for using the acquisition method of accounting in accordance with IFRS with the Edgewater assets acquired and Edgewater liabilities assumed being measured at their fair values, including net tangible and identifiable intangible assets as of the closing of the transactions. Any excess of the purchase price over those fair values will be recorded as goodwill.

Procedures for Exchange of Edgewater Common Stock for New Alithya Subordinate Voting Shares

At the effective time, New Alithya will deposit certificates, or at New Alithya’s option, evidence of shares in book-entry form, representing the total number of New Alithya Subordinate Voting Shares deliverable to the Edgewater stockholders pursuant to the transactions. As soon as reasonably practicable (and in any event within four business days) after the effective time, the exchange agent will mail each holder of record of Edgewater Common Stock a letter of transmittal and instructions for use in surrendering the Edgewater Common Stock in exchange for the Alithya Common Shares owed to such holder pursuant to the transactions. See “The Arrangement Agreement—Procedures for Exchange of Edgewater Common Stock for New Alithya Subordinate Voting Shares” beginning on page 89.

Upon surrender of Edgewater Common Stock for cancellation to the exchange agent, together with a duly executed letter of transmittal and any other documents reasonably required by the exchange agent, the holder of such Edgewater Common Stock is entitled to receive in exchange that number of New Alithya Subordinate Voting Shares into which such holder’s Edgewater Common Stock were converted pursuant to the terms of the arrangement agreement (see “The Arrangement Agreement—Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders” beginning on page 114). The properly surrendered Edgewater Common Stock will be cancelled.

 

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CERTAIN TAX CONSEQUENCES OF THE MERGER AND THE ARRANGEMENT

Certain U.S. Federal Income Tax Considerations

The following is a summary of certain U.S. federal income tax consequences of the merger and arrangement to (i) Edgewater and New Alithya, and (ii) U.S. holders and non-U.S. holders (each as defined below) of Edgewater Common Stock. This summary also describes certain U.S. federal income tax consequences of the subsequent ownership and disposition of New Alithya Subordinate Voting Shares by U.S. holders who receive such shares in exchange for Edgewater Common Stock pursuant to the merger and arrangement.

This summary does not address the U.S. federal income tax consequences of the ownership and disposition by non-U.S. holders of New Alithya Subordinate Voting Shares. The discussion below is limited to U.S. federal income tax matters. Accordingly, holders should consult their tax advisors regarding the U.S. federal alternative minimum, the Medicare tax on net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the merger and arrangement or the ownership and disposition of New Alithya Subordinate Voting Shares.

This summary is based on provisions of the Code, United States Treasury regulations promulgated thereunder (whether final, temporary, or proposed), administrative rulings, and judicial interpretations thereof, and the Canada-U.S. Tax Treaty, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a holder as a result of the transactions described below or as a result of the ownership and disposition of New Alithya Subordinate Voting Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular holder that may affect the U.S. federal income tax consequences to such holder, including specific tax consequences to a holder under applicable tax treaties other than the Canada-U.S. Tax Treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any holder. Holders should consult their tax advisors regarding such tax consequences in light of their particular circumstances.

No opinion of counsel to Alithya, New Alithya or Edgewater nor IRS ruling has been requested or will be obtained regarding the U.S. federal income tax consequences of the merger or the arrangement or any other matter described in this prospectus/proxy statement. As a result, there can be no assurance that the IRS will not challenge the U.S. federal income tax treatment described below or that, if challenged, such treatment will be sustained by a court.

This summary is limited to considerations relevant for investors holding Edgewater Common Stock, and, after the completion of the merger, New Alithya Subordinate Voting Shares, as capital assets (generally, property held for investment). This summary does not discuss all aspects of U.S. federal income taxation that may be important to holders in light of their individual circumstances, including holders subject to special tax rules, such as:

 

   

banks, thrifts, mutual funds, financial institutions, underwriters, insurance companies;

 

   

real estate investment trusts and regulated investment companies;

 

   

tax-exempt organizations, pension funds, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts;

 

   

expatriates or former long-term residents of the United States;

 

   

persons holding shares through a partnership, limited liability, or other fiscally or tax transparent entity;

 

   

dealers or traders in securities, commodities or currencies;

 

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grantor trusts;

 

   

persons subject to the alternative minimum tax;

 

   

U.S. persons whose “functional currency” is not the U.S. dollar;

 

   

partnerships or other pass-through entities;

 

   

persons who received Edgewater Common Stock, or, after the merger, New Alithya Subordinate Voting Shares, through the exercise of incentive stock options or through the issuance of restricted stock under an equity incentive plan or through a tax-qualified retirement plan or in other compensatory arrangements;

 

   

persons who own (directly or through attribution) 5% or more (by vote or value) of the outstanding stock of Edgewater or, after the merger and arrangement, the outstanding shares of New Alithya; or

 

   

holders holding Edgewater Common Stock, or, after the merger, New Alithya Subordinate Voting Shares, as a position in a “straddle,” as part of a “synthetic security” or “hedge,” as part of a “conversion transaction” or other integrated investment, or as other than a capital asset.

Holders that are subject to special provisions under the Code, including holders described immediately above, should consult their tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences of the merger and arrangement, as well as the ownership and disposition of New Alithya Subordinate Voting Shares. In addition, this discussion does not address the tax consequences to holders of Edgewater options or other equity awards that are assumed, replaced, exercised or converted, as the case may be, in connection with the arrangement agreement.

As used in this prospectus/proxy statement, the term “U.S. holder” means a beneficial owner of Edgewater Common Stock, and, after the completion of the merger, New Alithya Subordinate Voting Shares, that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation or other entity taxable as a corporation that is created or organized in or under the laws of the United States, any state in the United States or the District of Columbia;

 

   

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons with respect to all of its substantial decisions, or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

As used in this prospectus/proxy statement, the term “non-U.S. holder” means a beneficial owner (other than a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) of Edgewater Common Stock and, after the completion of the merger, New Alithya Subordinate Voting Shares, that is not a U.S. holder.

The U.S. federal income tax treatment of a partner in a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) that holds Edgewater Common Stock, and, after the completion of the merger, New Alithya Subordinate Voting Shares generally will depend on the status of the partner and the activities of the partnership. A partner in such a partnership should consult such holder’s tax advisor regarding the associated tax consequences.

U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater

Edgewater will not be subject to U.S. federal income tax in connection with the merger and arrangement transactions. However, Edgewater will continue to be subject to U.S. tax after the merger. In the event that the

 

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acquisition of Edgewater by New Alithya pursuant to the merger and arrangement was found to be a 60% inversion (as described below), Edgewater (and its U.S. affiliates) may be subject to limitations on the utilization of certain tax attributes, as described below (see discussion under the section entitled “Potential Application of the Inversion Rules to the New Alithya GroupPotential Limitation on the Utilization of Edgewater’s (and Its U.S. Affiliates’) Tax Attributes”).

In addition, it is anticipated that Edgewater may undergo an “ownership change” within the meaning of Section 382 of the Code, due to the merger and arrangement transactions, because former Edgewater shareholders are expected to own less than 50% of the outstanding New Alithya Shares at closing, and thus these persons will indirectly own less than 50% of Edgewater Common Stock as a result of the transactions. In general, an “ownership change” occurs if certain direct or indirect “5% shareholders” of Edgewater increase their collective ownership of Edgewater Common Stock by more than 50 percentage points looking back over the relevant testing period. For this purpose, 5% shareholders generally include individual persons or groups who own at least 5% of a corporation’s stock, taking into account certain complicated constructive ownership and grouping rules that have the effect of aggregating small owners of publicly traded stock. If an ownership change occurs, Edgewater’s (and its U.S. affiliates’) ability to use NOLs and certain other tax attributes to reduce its taxable income in the future would generally be limited to a “Section 382 limitation,” which would be equal to the fair market value of Edgewater stock immediately prior to the ownership change multiplied by the long-term tax-exempt interest rate in effect for the month of the ownership change. In the event of an ownership change, NOLs that exceed the Section 382 limitation in any year will continue to be allowed as carry-forwards for the remainder of the carry-forward period and such losses can be used to offset taxable income for years within the carry-forward period subject to the Section 382 limitation in each year. However, if the carry-forward period for any NOL were to expire before that loss had been fully utilized, the unused portion of that loss would be lost. The carry-forward period for NOLs generated in tax years beginning before December 31, 2017 (the effective date of the changes enacted by the Tax Cuts and Jobs Act to the provisions of the Code related to NOLs) is 20 years from the year in which the losses giving rise to the NOLs were incurred. Edgewater’s use of new NOLs arising after the date of an ownership change would not be affected by the Section 382 limitation (unless another ownership change occurred after those new losses arose). The Tax Cuts and Jobs Act restructured the existing NOL deduction and carry-forwards such that any NOLs generated in years beginning after December 31, 2017 will now be allowed to be carried forward indefinitely but their use will be limited to 80% of taxable income in any future year. In addition, it removed the carry-back period for NOLs generated after 2017.

Potential Application of the Inversion Rules to the New Alithya Group

Tax residence of New Alithya for U.S. federal income tax purposes

Under current U.S. federal income tax law, a corporation generally will be considered to be resident for U.S. federal income tax purposes in its place of organization or incorporation. Accordingly, under the generally applicable U.S. federal income tax rules, New Alithya, which is a Québec-incorporated entity, would generally be classified as a non-U.S. corporation (and, therefore, not a U.S. tax resident). Section 7874 of the Code and the regulations promulgated thereunder, however, contain specific rules (more fully discussed below) that may cause a non-U.S. corporation to be treated as a U.S. corporation for U.S. federal income tax purposes. As described in further detail below, the parties do not expect Section 7874 to apply to treat New Alithya as a U.S. corporation but there can be no assurance that the IRS will not challenge this position. If, contrary to the expectation of the parties, it were to be determined that New Alithya should be taxed as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code, New Alithya could be liable for substantial U.S. federal income tax and certain distributions made by New Alithya to non-U.S. holders of New Alithya Shares would be subject to U.S. withholding tax. The Section 7874 rules are complex, require analysis of all relevant facts, and there is limited guidance as to their application.

Under Section 7874, a corporation created or organized outside the United States (i.e., a non-U.S. corporation) will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes (and, therefore, be a U.S. tax resident subject to U.S. federal income tax on its worldwide income as prescribed under the Code) if each of the following three conditions are met: (1) the non-U.S. corporation directly or

 

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indirectly acquires substantially all of the assets held directly or indirectly by a U.S. corporation (including through the acquisition of all of the outstanding stock of the U.S. corporation), (2) the non-U.S. corporation’s expanded affiliated group does not have substantial business activities in the non-U.S. corporation’s country of organization or incorporation relative to the expanded affiliated group’s worldwide activities, referred to in this summary as the “substantial business activities test”, and (3) the shareholders of the acquired U.S. corporation hold at least 80% (by either vote or value) of the shares of the non-U.S. acquiring corporation after the acquisition by reason of holding shares in the U.S. acquired corporation (which includes the receipt of the non-U.S. corporation’s shares in exchange for the U.S. corporation’s shares), which is referred to in this prospectus/proxy statement as the “Ownership Test.” For this purpose, “expanded affiliated group” generally means the foreign acquiring corporation and all subsidiary corporations in which such foreign corporation owns, directly or indirectly, more than 50% of the stock (by vote and value).

In April 2016, the U.S. Treasury and the IRS issued the Temporary Regulations under Section 7874, which, among other things, require certain adjustments that generally increase, for purposes of the Ownership Test, the percentage of the stock of the acquiring non-U.S. corporation treated as owned (for purposes of Section 7874) by the former shareholders of the acquired U.S. corporation by reason of holding stock in such U.S. corporation. These Temporary Regulations were subsequently adopted, with modifications, as final regulations. Among other things, these regulations disregard, for purposes of the Ownership Test, (1) the effect that any “non-ordinary course distributions” (within the meaning of the regulations) made by the acquired U.S. corporation during the 36 months preceding the merger and arrangement, including certain dividends and share repurchases (which would include the special dividend to be declared by Edgewater to Edgewater stockholders of record immediately prior to the merger and arrangement as well as certain stock repurchases concluded by Edgewater prior to the closing of the merger and arrangement) would have on the value of the acquired corporation’s stock, and (2) in certain circumstances, shares of New Alithya held by former shareholders of Alithya that are treated as issued for or otherwise attributable to Alithya’s passive assets (as determined under applicable rules). In addition, these regulations may disregard certain historical acquisitions of the acquiring non-U.S. corporation or certain historical dispositions by the acquired U.S. corporation.

At the merger effective time, New Alithya will indirectly acquire all of Edgewater’s assets through the acquisition of all of Edgewater’s outstanding shares pursuant to the merger. As a result, the determination of whether New Alithya will be treated as a U.S. corporation for U.S. federal income tax purposes will depend on whether the “Ownership Test” or the “substantial business activities test” have been met.

Ownership Test

Based on the complex rules for determining share ownership under Section 7874 and certain factual assumptions, after the merger and arrangement, former Edgewater stockholders are expected to be treated as holding less than 80% (by both vote and value) of the New Alithya Shares by reason of their former ownership of Edgewater stock. As a result, New Alithya is not expected to be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874. However, whether the Ownership Test has been satisfied must be finally determined after the completion of the merger, by which time there could be adverse changes to the relevant facts and circumstances. Furthermore, the interpretation of regulations relating to the Ownership Test is subject to uncertainty and there is limited guidance regarding their application. In addition, changes to the rules in Section 7874 or the Treasury Regulations promulgated thereunder, or other changes in law, could adversely affect New Alithya’s status as a non-U.S. entity for U.S. federal income tax purposes. Accordingly, there can be no assurance that the IRS will not take a contrary position to those described above or that a court will not agree with a contrary position of the IRS in the event of litigation.

Substantial Business Activities Test

As noted above, New Alithya would not be treated as a U.S. corporation under the Section 7874 rules if it is treated as satisfying the “substantial business activities” test. After the merger and the arrangement, the New

 

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Alithya expanded affiliated group is expected to be treated as having substantial business activities in Canada, the country of formation of New Alithya. Treasury Regulations section 1.7874-3 provides that an expanded affiliated group will be treated as having substantial business activities in the relevant foreign country when compared to its total business activities if, in general, at least 25% of the expanded affiliated group’s employees (by number and compensation), asset value and gross income are based, located and derived, respectively, in the relevant foreign country. In general, (i) the number of “group employees” based in the relevant foreign country must be at least 25% of the total number of group employees on the applicable date, which is either the date of the closing of the transactions or the last day of the month immediately preceding the closing of the transactions (to be applied consistently for purposes of the substantial business activities test), (ii) the “employee compensation” incurred with respect to group employees based in the relevant foreign country must be at least 25% of the total employee compensation incurred with respect to all group employees during the testing period, which is the one-year period ending on the applicable date (as described in clause (i) above), (iii) the value of the “group assets” (generally, tangible and real property, including certain leases thereof) located in the relevant foreign country must be at least 25% of the total value of all group assets on the applicable date, and (iv) the “group income” derived in the relevant foreign country (generally, gross income from ordinary course sales to unrelated customers located in the relevant foreign country) must be at least 25% of the total group income during the testing period (as described in clause (ii) above).

A significant proportion of the operations of Alithya are located in Canada. If Alithya and the New Alithya expanded affiliated group continue these substantial Canadian business activities, and the relative proportion of these activities as compared to activities conducted outside of Canada remains consistent (or the relative proportion of these activities in Canada increases) through the closing date of the transactions and thereafter, the New Alithya expanded affiliated group is expected to satisfy the substantial business activities test. In that case, New Alithya is not expected to be treated as a U.S. domestic corporation for U.S. federal income tax purposes, and Edgewater is not expected to be subject to the other limitations under section 7874 of the Code as described below (see “—Potential Limitation on the Utilization of Edgewater’s (and Its U.S. Affiliates’) Tax Attributes”). U.S. holders are cautioned, however, that the determination of whether the substantial business activities test will be satisfied will be made as of the closing of the merger and arrangement, and there could be adverse changes to the relevant facts and circumstances. In addition, there could be a future change in law under Section 7874 of the Code, the Treasury Regulations promulgated thereunder or otherwise that could have an adverse effect on the discussion provided above and result in New Alithya being treated as a U.S. corporation. Accordingly, there can be no assurance that the New Alithya expanded affiliated group will satisfy the substantial business activities test in connection with the merger and arrangement or thereafter. U.S. holders should consult their tax advisor regarding the potential application and impact of the inversion rules to the transactions contemplated in the arrangement agreement.

Regardless of the application of Section 7874 of the Code, New Alithya is expected to be treated as a Canadian resident company for Canadian tax purposes because New Alithya is incorporated under Québec law and intends to have its place of central management and control (as determined for Canadian tax purposes) in Québec. The remaining discussion assumes that New Alithya will not be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code.

Potential limitation on the utilization of Edgewater’s (and its U.S. affiliates’) tax attributes

Following the acquisition of a U.S. corporation by a non-U.S. corporation, even if the 80% Ownership Test is not met, Section 7874 may apply to limit the ability of the acquired U.S. corporation and its U.S. affiliates to utilize certain U.S. tax attributes (including net operating losses and certain tax credits) to offset U.S. taxable income resulting from certain transactions. Specifically, if (a) New Alithya does not satisfy the “substantial business activities test” and (b) the former Edgewater stockholders are treated as holding, as determined under the Ownership Test, at least 60% (but less than 80%), by either vote or value, of the shares of New Alithya by reason of holding stock in Edgewater, the taxable income of Edgewater (and any person related to it) for any given year, within a ten-year period beginning on the date of the merger, will be no less than that person’s

 

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“inversion gain” for that taxable year. Edgewater’s (or its affiliates’) inversion gain includes gain from the transfer of stock or any other property (other than property held for sale to customers) and income from the license of any property that is either transferred or licensed as part of the transactions, or, if after the transactions, is transferred or licensed to a non-U.S. related person. Further, the Tax Cuts and Jobs Act imposed additional adverse provisions on a U.S. corporation that has failed the “substantial business activities test” and the “60% Ownership Test” (an “expatriated entity”), including that the expatriated entity must include, as base erosion payments that may be subject to a minimum tax, any amounts treated as reductions in gross income paid to a related foreign person within the meaning of Section 59A of the Code.

Pursuant to the arrangement agreement, which governs the terms of the arrangement and the merger, and to complex regulations issued under Section 7874 of the Code that govern the application of the Ownership Test, it is possible that the former Edgewater stockholders may be treated as receiving at least 60% of the vote or value of the New Alithya Shares by reason of holding Edgewater Common Stock. In such case, Edgewater and its U.S. affiliates would be subject to the adverse rules described in the preceding paragraph if, contrary to the expectation expressed above, the New Alithya expanded affiliated group is determined not to meet the “substantial business activities” test in connection with the merger and arrangement (see discussion under the heading entitled “—Tax residence of New Alithya for U.S. federal income tax purposes—Substantial Business Activities Test”). In any case, whether the 60% threshold of the Ownership Test has been satisfied must be finally determined upon the closing of the merger and arrangement, by which time there could be adverse changes to the relevant facts and circumstances. Further, a subsequent change in law might have an adverse impact on the discussion provided above, including with retroactive effect. In such event, Edgewater and/or its U.S. affiliates could be subject to substantial additional U.S. federal income tax on their future operations and income following the closing of the merger and arrangement.

The application of the inversion rules in Section 7874 are complex and there is limited guidance regarding their application. No opinion of counsel or IRS ruling has been sought regarding the application of these rules to the merger and arrangement. Accordingly, there can be no assurance that the IRS will not take a contrary position to those described above or that a court will not agree with a contrary position of the IRS in the event of litigation. Holders of Edgewater Common Stock should consult with their independent advisors regarding the potential application of Section 7874 to the merger and arrangement.

Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. holders

The special dividend

Edgewater will declare a special dividend to the holders of record of Edgewater Common Stock immediately prior to the anticipated closing date of the merger, which special dividend will be contingent upon the closing of the transactions and be declared at least 10 days prior to, and be paid within 10 days following, such closing. See “The Arrangement Agreement—Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders” beginning on page 114.

Due to the manner in which the special dividend is expected to be funded, there is uncertainty regarding the proper treatment of the special dividend for U.S. federal income tax purposes. More specifically, (a) Edgewater expects to fund the special dividend, in part, through an amendment to its existing revolving credit facility, (b) such funding is subject to the condition that the entire amount outstanding under such facility be repaid prior to or concurrently with the payment of the special dividend, and (c) New Alithya intends to repay such Edgewater facility using cash available to Alithya and/or New Alithya. In these circumstances, under applicable U.S. federal income tax authorities, the special dividend may be treated as, in economic substance, acquisition consideration received by holders of Edgewater Common Stock from Alithya in exchange for their Edgewater Common Stock rather than a dividend distribution received from Edgewater. Although the matter is not free from doubt, Edgewater and New Alithya expect to take the position that the special dividend is treated, for U.S. federal income tax purposes, as consideration received by former stockholders of Edgewater in exchange for Edgewater Common Stock as part of the merger and the arrangement and not as a separate pre-merger distribution by Edgewater.

 

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The treatment of the special dividend as consideration received by U.S. holders of Edgewater Common Stock as part of the merger and arrangement or, alternatively, as a separate pre-closing distribution by Edgewater, may have a material effect on the U.S. federal income tax treatment of the merger and arrangement to such holder, depending on each holder’s particular circumstances. In general, certain U.S. holders that are not tax-exempt persons may prefer for the special dividend to be treated as a separate, pre-closing distribution by Edgewater because, in such case, some or all of the special dividend may be received as a tax-free return of capital for U.S. federal income tax purposes as described in more detail below under the section entitled “—U.S. Tax Considerations if the special dividend is treated as a separate distribution by Edgewater”.

By contrast, if the special dividend is treated as consideration received as part of the merger and arrangement, which is the position that Edgewater and New Alithya expect to take, certain U.S. holders of Edgewater Common Stock would generally be expected to recognize taxable capital gain (but not loss) for U.S. federal income tax purposes in connection with their receipt of the special dividend as described below under the section entitled “—The merger and arrangement”. This may result in a U.S. holder of Edgewater Common Stock recognizing a greater current U.S. federal income tax liability than such holder would have recognized if the special dividend had been treated as a separate, pre-merger distribution by Edgewater.

Holders of Edgewater Common Stock should consult their tax advisor regarding the treatment of the special dividend as either consideration received from Alithya in the merger and arrangement or, alternatively, as a separate distribution. Such holders are cautioned that the U.S. federal income tax consequences to them of these alternative characterizations will depend on their particular circumstances. As a result, holders of Edgewater Common Stock should consult their independent tax advisor to determine the U.S. tax treatment of the special dividend to them having regard to their circumstances.

U.S. Tax Considerations if the special dividend is treated as a separate distribution by Edgewater

If, contrary to the expectation of the parties, the special dividend is treated, for U.S. federal income tax purposes, as a separate distribution occurring prior to the closing of the merger and arrangement transactions and such position were sustained, the special dividend would be treated as dividend income to the extent paid out of Edgewater’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Edgewater has informed New Alithya and Alithya that it does not believe it has any such accumulated earnings and profits as of the date of this prospectus/proxy statement and does not expect that it will have any current year earnings and profits for the year in which the merger and arrangement close. Accordingly, Edgewater expects that some or all of the special dividend will exceed its current and accumulated earnings and profits at the time of such payment.

Any amount treated as dividend income would be includible in each U.S. holder’s gross income on the day received by such stockholder. Under current legislation, this income generally will be taxed for U.S. federal income tax purposes to non-corporate U.S. holders (including individuals) at the rates applicable to long-term capital gains. Non-corporate U.S. holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code (dealing with the deduction for investment interest expense) will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Corporate U.S. holders may be entitled to a dividends-received deduction to the extent that the special dividend is treated as dividend income for U.S. federal income tax purposes, subject to limitations and conditions. In addition, U.S. holders of Edgewater Common Stock should consult their tax advisors regarding the potential applicability of the “extraordinary dividend” provisions of the Code in light of their particular circumstances.

To the extent that the amount of the special dividend does exceed Edgewater’s current and accumulated earnings and profits, as determined under U.S. federal income tax principles, for the year during which the closing occurs, the excess would first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the U.S. holder’s Edgewater Common Stock, and to the extent the excess exceeds the U.S. holder’s tax

 

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basis in such holder’s Edgewater Common Stock, the excess would be taxed as capital gain recognized on a sale or exchange of Edgewater Common Stock as described below under “—The merger and arrangement.

The U.S. federal income tax treatment of the special dividend is subject to uncertainty. Accordingly, U.S. holders should consult their independent tax advisor regarding the treatment of such special dividend and the tax consequences of the characterizations described above to them in their particular circumstances. Except as specifically provided below, the remainder of this discussion assumes the special dividend is treated, for U.S. federal income tax purposes, as consideration received by former stockholders of Edgewater in exchange for Edgewater Common Stock as part of the merger and the arrangement (and not as a separate pre-merger distribution by Edgewater).

The merger and arrangement

In the merger, (i) the U.S. Merger Sub will merge with and into Edgewater with Edgewater surviving, and (ii) for U.S. federal income tax purposes, Edgewater stockholders will exchange their Edgewater Common Stock for New Alithya Subordinate Voting Shares received from New Alithya in the share exchange. The parties intend for the merger and the arrangement collectively to qualify as a transfer described in Section 351 of the Code. In addition, it is possible that the merger may also qualify as a reorganization under Section 368(a) of the Code. Furthermore, as indicated above, the parties expect to take the position that the special dividend, for U.S. federal income tax purposes, is treated as consideration received by former holders of Edgewater Common Stock in connection with the merger and arrangement and not as a separate pre-merger distribution. In such case, and subject to the potential application of (i) Section 367 as discussed below under the section entitled “—Potential application of Section 367 of the Code” and/or (ii) Section 304 of the Code as discussed below under the section entitled “—Potential application of Section 304 of the Code,” the U.S. federal income tax consequences of the merger and arrangement to U.S. holders of Edgewater Common Stock should generally be as follows:

 

   

a U.S. holder will recognize gain, but not loss, in an amount equal to the lesser of (1) the excess of the sum of (i) the fair market value of New Alithya Subordinate Voting Shares received, and (ii) cash received pursuant to the special dividend, over such U.S. holder’s tax basis in Edgewater Common Stock surrendered, and (2) the amount of cash received pursuant to the special dividend by such holder;

 

   

the U.S. holder’s aggregate tax basis of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will be the same as the aggregate tax basis of the shares of Edgewater Common Stock surrendered in exchange therefor, decreased by the amount of cash received pursuant to the special dividend, and increased by the amount of gain recognized on the exchange; and

 

   

the U.S. holder’s holding period of the New Alithya Subordinate Voting Shares received pursuant to the merger and arrangement will include the holding period of the Edgewater Common Stock surrendered therefor.

Subject to the discussion below regarding the potential application of Section 304 of the Code, any such gain recognized by such U.S. holder will be treated as capital gain and will be long-term capital gain if such U.S. holder’s holding period for shares of Edgewater Common Stock that are surrendered is more than one year as of the closing date of the merger and arrangement. Long-term capital gains of certain non-corporate holders, including individuals, are generally taxed at preferential rates. If a U.S. holder acquired different blocks of shares of Edgewater Common Stock at different times or at different prices, any gain generally will be determined separately with respect to each block of shares of Edgewater Common Stock that is surrendered in the merger and arrangement. A U.S. holder should consult with its tax advisor regarding the manner in which the above rules would apply to such U.S. holder having regard to such holder’s particular circumstances.

If, contrary to the intention of the parties, it is determined that the transfer of Edgewater Common Stock in connection with the merger and arrangement does not qualify as a transfer within the meaning of Section 351 of the Code (or as a reorganization under Section 368(a) of the Code), then a U.S. holder generally should recognize gain or loss in an amount equal to the excess of (i) the sum of the fair market value of the New Alithya Subordinate Voting Shares and the special dividend received by such holder over (ii) such holder’s adjusted tax

 

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basis in the shares of Edgewater Common Stock exchanged therefor. Any such gain would be capital gain, and generally would be long-term capital gain if the U.S. holder’s holding period for the Edgewater Common Stock exceeded one year at the time of the merger and arrangement. The aggregate tax basis in the New Alithya Subordinate Voting Shares received would generally be equal to the fair market value of such shares as of the closing date of the merger and arrangement. A U.S. holder’s holding period in New Alithya Subordinate Voting Shares would begin on the day immediately following the closing date of the merger and arrangement. The deductibility of capital losses is subject to limitations.

Potential Application of Section 367 of the Code

Even if the transfer of Edgewater Common Stock by a U.S. holder pursuant to the merger and arrangement is treated as a transfer described in Section 351 of the Code (or as a reorganization under Section 368(a) of the Code), if Section 367(a) of the Code applies to the transactions, a U.S. holder would be required to recognize gain, if any (but not loss) on the disposition of Edgewater Common Stock pursuant to the merger and arrangement in an amount equal to the excess of (i) the sum of the fair market value of the New Alithya Subordinate Voting Shares and special dividend received by such holder, over (ii) the holder’s adjusted tax basis in the shares of Edgewater Common Stock surrendered. This might result in a U.S. holder of Edgewater Common Stock recognizing a greater amount of gain for U.S. federal income tax purposes than such holder would have recognized if Section 367(a) of the Code did not apply.

Section 367(a) of the Code generally requires U.S. shareholders to recognize gain (but not loss) when stock of a U.S. corporation is exchanged for stock of a non-U.S. corporation in an exchange that would otherwise qualify for non-recognition treatment, among other requirements, and either (i) if the U.S. shareholders of the acquired U.S. corporation receive more than 50% (by vote or value) of the stock of the non-U.S. corporation, or (ii) if the U.S. and non-U.S. corporations fail to meet the “active trade or business test”. The “active trade or business test” generally requires (I) the non-U.S. corporation to be engaged in an “active trade or business” outside of the U.S. for the 36 month period immediately before the exchange and neither the U.S. nor the non-U.S. corporation have an intention to substantially dispose of or discontinue such trade or business, and (II) the fair market value of the non-U.S. corporation to be at least equal to the fair market value of the U.S. corporation, as specifically determined for purposes of Section 367 of the Code, as of the closing of the merger and arrangement (the “substantiality test”). For purposes of applying the substantiality test, the fair market value of Edgewater will be deemed to include the value of any non-ordinary course distributions, as determined under applicable Treasury Regulations, made by Edgewater during the 36-month period ending on the closing of the merger and arrangement. A portion of the special dividend and certain stock buybacks engaged in by Edgewater are expected to be treated as non-ordinary course distributions for this purpose.

Subject to the following paragraph, Edgewater and New Alithya expect that the determination of whether Section 367(a) will apply to U.S. holders of Edgewater Common Stock that participate in the merger and arrangement will depend on whether the “substantiality test” is satisfied. In general, the parties expect that the substantiality test should be met (in which case, Section 367(a) would not apply) if (a) the fair market value of New Alithya Subordinate Voting Shares received by former shareholders of Alithya (excluding any former shareholders of Alithya that exercise dissent rights) pursuant to the arrangement is equal to or greater than, (b) the sum of (i) the fair market value of New Alithya Subordinate Voting Shares received by former shareholders of Edgewater pursuant to the merger and arrangement, and (ii) the aggregate amount of non-ordinary course distributions, as determined under applicable Treasury Regulations, made by Edgewater during the 36 month period ending on the closing date of the merger and arrangement. There is limited guidance regarding the application of Section 367(a) in this context and, as a result, there can be no assurance that the IRS will not challenge the application of the substantiality test as described above. In addition, U.S. holders are cautioned that the determination of whether Section 367(a) will apply to U.S. holders of Edgewater Common Stock cannot be made until the transactions contemplated under the arrangement agreement, including the special dividend, are completed because, among other factors, the fair market value of New Alithya Subordinate Voting Shares delivered to former shareholders of Alithya and Edgewater respectively must be measured at the time of the arrangement and merger. Similarly, the amount of former Alithya shareholders that will exercise dissent rights and the amount of the special dividend are

 

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not finally determined as of the date of this prospectus/proxy statement. Accordingly, there can be no assurance that Section 367(a) will not apply to U.S. holders of Edgewater Common Stock that participate in the merger and arrangement.

Even if the “substantiality test” and other requirements of Section 367(a) are met, a U.S. holder of Edgewater Common Stock who owns, directly or through the application of constructive ownership rules, at least 5% (by vote or value) of the total outstanding shares of New Alithya immediately after the closing of the merger and arrangement would generally be required to timely file a gain recognition agreement with the IRS in order to be establish an exception from the application of Section 367(a). Any U.S. holder of Edgewater Common Stock that would meet the 5% ownership requirement described in the preceding sentence is urged to consult their own tax advisor concerning the decision to file a gain recognition agreement and the procedures to be followed in connection with such filing.

If the transactions contemplated by the merger and arrangement are treated as a transfer described in Section 351 of the Code (or as a reorganization under Section 368(a) of the Code), but it is determined that Section 367(a) of the Code does apply to the transfer of Edgewater Common Stock by a U.S. holder, then a U.S. holder would generally recognize gain, if any, in an amount equal to the excess of (i) the sum of the fair market value of the New Alithya Subordinate Voting Shares and the special dividend received by such holder, over (ii) such holder’s adjusted tax basis in the shares of Edgewater Common Stock exchanged therefor. Any such gain would be capital gain, and generally would be long-term capital gain if the U.S. holder’s holding period for the Edgewater Common Stock exceeded one year at the time of the merger. The adjusted tax basis in the New Alithya Subordinate Voting Shares received would be equal to the adjusted tax basis of the shares of Edgewater Common Stock exchanged therefor, increased by the amount of gain recognized, and reduced by the amount of the special dividend received. The U.S. holder would not recognize any loss in such holder’s shares of Edgewater Common Stock and would not be permitted to net any such losses against any gain recognized with respect to other shares of Edgewater Common Stock.

U.S. Holders of Edgewater Common Stock should consult their independent tax advisors regarding the qualification of the transactions described above as a transfer described in section 351 of the Code (and/or a reorganization under section 368(a) of the Code). U.S. Holders are cautioned that the potential application of Section 367(a) of the Code to the transactions described in this summary is complex and depends on factors that cannot be determined until the closing of the merger and arrangement. Accordingly, U.S. holders should consult with their independent tax advisor regarding the potential application of Section 367(a) of the Code in their particular situation, including whether they should potentially proceed on the basis that the exchange of Edgewater Common Stock pursuant to the merger and arrangement will be a fully taxable transaction for U.S. federal income tax purposes.

Potential application of Section 304 of the Code

Notwithstanding the foregoing, the U.S. federal income tax consequences of the merger and arrangement to U.S. holders of Edgewater Common Stock could be different from those described above if Section 304 of the Code applied to such transactions. Section 304 of the Code would apply to the merger and arrangement if the Edgewater stockholders, in the aggregate, own immediately after these transactions, 50% or more of the New Alithya Shares, by vote or value, taking into account certain constructive ownership rules under the Code. As noted in this prospectus/proxy statement, the former stockholders of Edgewater are expected to own approximately 42% of the total number of outstanding New Alithya Shares on a fully-diluted basis. However, this level of ownership does not take into account the potential application of the constructive ownership rules referred to above, any overlapping ownership of Edgewater Common Stock and Alithya Shares, or any changes in ownership that may occur prior to, or in connection with, the closing of the merger and arrangement.

If Section 304 of the Code were to apply to the merger and arrangement, a U.S. holder of Edgewater Common Stock may be treated as having received its share of the special dividend as cash consideration from New Alithya in a deemed redemption of New Alithya Shares deemed issued to such holder. In certain circumstances, depending in part on the circumstances of a particular U.S. holder, some or all of the special

 

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dividend that is treated as received in such deemed redemption could be treated as the distribution of a dividend to such holder. U.S. holders should consult their own tax advisors regarding the potential application of Section 304 to the merger and arrangement as well as the amount and character of any income in the event that Section 304 applies to such holder in their particular circumstances.

The potential application of Section 304 to the transactions contemplated in the arrangement agreement is complex and subject to material uncertainty. Moreover, because the application of Section 304 of the Code to the merger and arrangement depends on the ownership of Edgewater stock and New Alithya Shares at the time of the merger and arrangement and is determined after the application of various constructive ownership rules and depends on the circumstances of each U.S. holder, it is not possible to determine whether Section 304 will apply to the transactions contemplated in the arrangement agreement. Further, it may not be possible to establish with certainty following the closing of the merger and arrangement whether Section 304 of the Code applied to these transactions because the ownership information necessary to make such determination may not be available. Accordingly, U.S. holders are urged to consult their tax advisor regarding the potential application of Section 304 to the merger and arrangement and the potential impact of its application to them having regard to such holder’s particular circumstances.

Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are Non-U.S. holders

The special dividend

As described above under the section entitled “—Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. Holders— The special dividend,” due to the manner in which the special dividend is expected to be funded, there is uncertainty regarding the proper treatment of the special dividend for U.S. federal income tax purposes. Although the matter is not free from doubt, Edgewater and New Alithya expect to take the position that the special dividend to be declared by Edgewater to its stockholders of record immediately prior to the merger is treated, for U.S. federal income tax purposes, as consideration received by former stockholders of Edgewater in exchange for Edgewater Common Stock as part of the merger and the arrangement and not as a separate pre-merger distribution by Edgewater. In such case, non-U.S. holders of Edgewater Common Stock generally will be subject to the U.S. federal income tax consequences described below under the section entitled “—The merger and arrangement.

U.S. Tax Considerations if the Special Dividend is treated as a separate distribution by Edgewater

If, contrary to the expectation of the parties, the special dividend is treated, for U.S. federal income tax purposes, as a distribution by Edgewater taken into account separate from the merger and arrangement transactions and such position were sustained, the special dividend would be treated as dividend income to the extent paid out of Edgewater’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Edgewater has informed New Alithya and Alithya that it does not believe it has any such accumulated earnings and profits as of the date of this prospectus/proxy statement and does not expect that it will have any current year earnings and profits for the year in which the merger and arrangement close. Accordingly, Edgewater expects that some or all of the special dividend will exceed its current and accumulated earnings and profits at the time of such payment.

Any amount of the special dividend received by a non-U.S. holder that is treated as dividend income would be subject to U.S. withholding tax at a 30% rate if such dividend income is not effectively connected with a trade or business of the non-U.S. holder in the United States. The 30% rate may be reduced under the provisions of an applicable income tax treaty between the United States and the country in which the non-U.S. holder resides or is organized. Income of non-U.S. holders that is effectively connected with a U.S. trade or business and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States, will be subject to U.S. federal income tax on a net income basis in the same manner as if such non-U.S. holder were a U.S. person.

 

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To the extent that the amount of the special dividend exceeds Edgewater’s current and accumulated earnings and profits at the time of such payment, as determined under U.S. federal income tax principles, the excess will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the non-U.S. holder’s Edgewater Common Stock. To the extent the excess exceeds the non-U.S. holder’s tax basis in such holder’s Edgewater Common Stock, such excess will be treated as capital gain recognized on a sale or exchange of Edgewater Common Stock but is expected to be subject to U.S. federal income taxation only under the limited circumstances described below under “—The merger and arrangement.

A non-U.S. holder that is a corporation may also be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable tax treaty) on any income resulting from the special dividend that is effectively connected earnings and profits for the taxable year, as adjusted for certain items.

The U.S. federal income tax treatment of the special dividend is subject to uncertainty. Accordingly, non-U.S. holders should consult their independent tax advisor regarding the treatment of such special dividend and the tax consequences of the characterizations described above to them in their particular circumstances.

The merger and arrangement

Regardless of whether the merger and arrangement collectively qualify as a transfer described in Section 351 of the Code, but subject to the potential application of Section 304 of the Code (see discussion below under the heading entitled “—Potential Application of Section 304 of the Code”), a non-U.S. holder of Edgewater Common Stock generally will not be subject to U.S. federal income tax on any gain realized in connection with the merger and arrangement unless,

 

   

the gain is effectively connected with a U.S. trade or business conducted by such non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed place of business maintained by the non-U.S. holder in the United States); or

 

   

such non-U.S. holder is an individual who is present in the United States for 183 days or more during the taxable year in which the merger is completed, and certain other conditions are met.

Subject to the potential application of Section 304 (as discussed below), gain described in the first bullet point above will be subject to U.S. federal income taxation in the same manner as gain of a U.S. holder (and, in the case of a non-U.S. holder that is a non-U.S. corporation, may be subject to an additional branch profits tax equal to 30% of its effectively connected earnings and profits (or such lower rate as may be applicable under an applicable income tax treaty)).

Subject to the potential application of Section 304 (as discussed below), gain described in the second bullet point above will generally be subject to U.S. federal income tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty), which generally may be offset by the non-U.S. holder’s U.S. source capital losses, provided that the holder has timely filed U.S. federal income tax returns with respect to such losses.

A non-U.S. holder generally will not be subject to U.S. backup withholding if such holder provides a certification of exempt status (generally on an applicable IRS Form W-8). Any amounts withheld under the backup withholding rules will generally be allowed as a refund or a credit against the non-U.S. holder’s U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS.

Potential Application of Section 304 of the Code

Notwithstanding the foregoing, the U.S. federal income tax consequences of the merger and arrangement to non-U.S. holders of Edgewater Common Stock could be different from those described above if Section 304 of the Code applied to such transactions. Section 304 of the Code would apply to the merger and arrangement if the Edgewater stockholders, in the aggregate, own immediately after these transactions, 50% or more of the New Alithya Shares, by vote or value, taking into account certain constructive ownership rules under the Code. As noted in this prospectus/proxy statement, the former stockholders of Edgewater are expected to own

 

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approximately 42% of the total number of outstanding New Alithya Shares on a fully-diluted basis. However, this level of ownership does not take into account the potential application of the constructive ownership rules referred to above, any overlapping ownership of Edgewater Common Stock and Alithya Shares, or any changes in ownership that may occur prior to, or in connection with, the closing of the merger and arrangement.

If Section 304 of the Code were to apply to the merger and arrangement, a non-U.S. holder of Edgewater Common Stock may be treated as having received its share of the special dividend as cash consideration from New Alithya in a deemed redemption of New Alithya Shares deemed issued to such holder. In certain circumstances, depending in part on the circumstances of a particular non-U.S. holder, some or all of the special dividend that is treated as received in such deemed redemption could be treated as the distribution of a dividend to such holder which may be subject to U.S. withholding tax in certain circumstances. Non-U.S. holders should consult their own tax advisors regarding the potential application of Section 304 to the merger and arrangement as well as the treatment of any income in the event that Section 304 applies to such holder in their particular circumstances.

The potential application of Section 304 to the transactions contemplated in the arrangement agreement is complex and subject to material uncertainty. Moreover, because the application of Section 304 of the Code to the merger and arrangement depends on the ownership of Edgewater stock and New Alithya shares at the time of the merger and arrangement, is determined after the application of various constructive ownership rules and depends on the circumstances of each non-U.S. holder, it is not possible to determine whether Section 304 will apply to the transactions contemplated in the arrangement agreement. Further, it may not be possible to establish with certainty following the closing of the merger and arrangement whether Section 304 of the Code applied to these transactions because the ownership information necessary to make such determination may not be available. Accordingly, non-U.S. holders are urged to consult their tax advisor regarding the potential application of Section 304 to the merger and arrangement and the potential impact of its application to them having regard to such holder’s particular circumstances.

U.S. Federal Income Tax Consequences to U.S. Holders of the Ownership and Disposition of New Alithya Subordinate Voting Shares

Distributions on New Alithya Subordinate Voting Shares

Subject to the discussion under “—Passive foreign investment company status” below, the gross amount of any distribution on New Alithya Subordinate Voting Shares (including withheld taxes, if any) made out of New Alithya’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. holder as ordinary dividend income on the date such distribution is actually or constructively received. Any such dividends paid to corporate U.S. holders generally will not qualify for the dividends-received deduction that may otherwise be allowed under the Code. Distributions in excess of New Alithya’s current and accumulated earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. holder’s basis in such holder’s New Alithya Subordinate Voting Shares, and thereafter as capital gain.

Dividends paid in currencies other than the U.S. dollar, if any, will generally be taxable to a U.S. holder as ordinary dividend income in an amount equal to the U.S. dollar value of the currency received on the date such distribution is actually or constructively received. Such U.S. dollar value must be determined using the spot rate of exchange on such date, regardless of whether the non-U.S. currency is actually converted into U.S. dollars on such date. The U.S. holder may realize exchange gain or loss if the currency received is converted into U.S. dollars after the date on which it is actually or constructively received. Any such gain or loss will be ordinary and will generally be treated as from sources within the United States for U.S. foreign tax credit purposes.

Dividends received by non-corporate U.S. holders (including individuals) from a “qualified foreign corporation” may be eligible for reduced rates of taxation, provided that certain holding period requirements and other conditions are satisfied. For these purposes, a non-U.S. corporation will be treated as a qualified foreign

 

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corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States which is determined by the U.S. Treasury Department to be satisfactory for purposes of these rules and which includes an exchange of information provision. The U.S. Treasury Department has determined that the Canada-U.S. Tax Treaty meets these requirements. A non-U.S. corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that the New Alithya Subordinate Voting Shares, which are expected to be listed on NASDAQ, should be considered readily tradable on an established securities market in the United States. However, there can be no assurance that the New Alithya Subordinate Voting Shares will be considered readily tradable on an established securities market in future years. Notwithstanding the foregoing, New Alithya will not constitute a qualified foreign corporation for purposes of these rules if either it is (i) a passive foreign investment company, or “PFIC”, for the taxable year in which it pays a dividend or for the preceding taxable year (see “—Passive foreign investment company status” below), or (ii) an “expatriated entity” (see “—Potential Application of the Inversion Rules to the New Alithya Group—Potential limitation on the utilization of Edgewater’s (and its U.S. affiliates’) tax attributes”).

Subject to certain conditions and limitations, withholding taxes, if any, on dividends paid by New Alithya may be treated as foreign taxes eligible for credit against a U.S. holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. For purposes of calculating the U.S. foreign tax credit, dividends paid on New Alithya Subordinate Voting Shares will generally be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing the U.S. foreign tax credit are complex. U.S. holders should consult their tax advisors regarding the availability of the U.S. foreign tax credit under their particular circumstances.

Sale, exchange, redemption or other taxable disposition of New Alithya Subordinate Voting Shares

Subject to the discussion under “—Passive foreign investment company status” below, a U.S. holder will generally recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of New Alithya Subordinate Voting Shares in an amount equal to the difference between the amount realized on the disposition and such holder’s tax basis in the shares. The tax basis of New Alithya Subordinate Voting Shares received by a U.S. holder in the exchange of Edgewater stock is discussed above under “—Certain U.S. Federal Income Tax Consequences of the Merger and Arrangement to Edgewater Stockholders that are U.S. holders—The merger and arrangement”. Any gain or loss recognized by a U.S. holder on a taxable disposition of New Alithya Subordinate Voting Shares will generally be capital gain or loss and will be long-term capital gain or loss if the holder’s holding period in such shares (which will include the holder’s holding period in the shares of Edgewater Common Stock surrendered in the merger (assuming the merger and arrangement qualify as a transfer described in Section 351 of the Code (and/or the merger qualifies as a reorganization under Section 368 of the Code)) exceeds one year at the time of the disposition. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. holder on the sale or exchange of New Alithya Subordinate Voting Shares will generally be treated as U.S. source gain or loss.

Passive foreign investment company status

Notwithstanding the foregoing, certain adverse U.S. federal income tax consequences could apply to a U.S. holder if New Alithya is treated as a PFIC for any taxable year during which the U.S. holder holds New Alithya Subordinate Voting Shares. A non-U.S. corporation, such as New Alithya, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year in which, after applying certain look-through rules, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains.

New Alithya is not currently expected to be treated as a PFIC for U.S. federal income tax purposes for the taxable year of the merger or for foreseeable future taxable years. This conclusion is a factual determination,

 

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however, that must be made annually at the close of each taxable year and, thus, is subject to change. There can be no assurance that New Alithya will not be treated as a PFIC for any taxable year.

If New Alithya were to be treated as a PFIC, U.S. holders holding New Alithya Subordinate Voting Shares could be subject to certain adverse U.S. federal income tax consequences with respect to gain realized on a taxable disposition of such shares and certain distributions received on such shares. In addition, dividends received with respect to New Alithya Subordinate Voting Shares would not constitute qualified dividend income eligible for preferential tax rates if New Alithya is treated as a PFIC for the taxable year of the distribution or for its preceding taxable year. Certain elections (including a mark-to-market election) may be available to U.S. holders to mitigate some of the adverse tax consequences resulting from PFIC treatment. U.S. holders should consult their tax advisers regarding the application of the PFIC rules to their investment in New Alithya Subordinate Voting Shares.

Information Reporting and Backup Withholding

U.S. holders that own at least 5% (by vote or value) of outstanding Edgewater stock immediately before, and/or at least 5% (by vote or value) of outstanding New Alithya Shares immediately after the merger and arrangement generally will be required to file with the IRS certain information statements that apply to transfers under Section 351 of the Code. Other information reporting, including with respect to certain U.S. holders information reporting on IRS Form 926, could also apply to the merger and arrangement. U.S. holders should consult their own tax advisors about the information reporting requirements that could be applicable to the merger and arrangement and any potential penalties associated with a failure to satisfy such requirements.

In general, information reporting will apply to dividends in respect of New Alithya Subordinate Voting Shares and the proceeds from the sale, exchange, or redemption of New Alithya Subordinate Voting Shares that are paid to a U.S. holder within the United States (and in certain cases, outside the United States), unless such holder is an exempt recipient. A backup withholding tax (currently at a rate of 24%) may apply to such payments if the holder fails to provide a taxpayer identification number (“TIN”) or certification of exempt status or fails to report in full its dividend and interest income.

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS. The IRS may impose a penalty upon any taxpayer that fails to provide its correct TIN.

Certain U.S. holders holding specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold are required to report information relating to New Alithya Subordinate Voting Shares, subject to certain exceptions (including an exception for New Alithya Subordinate Voting Shares held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, to their tax return, for each year in which they hold New Alithya Subordinate Voting Shares. Holders should consult their tax advisors regarding information reporting requirements relating to their ownership of New Alithya Subordinate Voting Shares.

Certain Canadian Federal Income Tax Considerations

The following is a summary of the principal Canadian federal income tax considerations generally applicable to a person who acquires as beneficial owner New Alithya Subordinate Voting Shares in exchange for Edgewater Common Stock as part of the merger, and who, at all relevant times, for purposes of the Income Tax Act (Canada) (the “Tax Act”): (i) deals at arm’s length with Edgewater and New Alithya; (ii) is not affiliated with Edgewater or New Alithya; (iii) holds the Edgewater Common Stock or the New Alithya Subordinate Voting Shares, as the case may be, as capital property; and (iv) has not entered into, with respect to the Edgewater Common Stock or New Alithya Subordinate Voting Shares, a “derivative forward agreement”, a “synthetic disposition arrangement” or a “dividend rental arrangement”, each as defined in the Tax Act (a “Holder”). Generally, the New Alithya Subordinate Voting Shares and Edgewater Common Stock will be capital

 

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property to a Holder provided the Holder does not acquire or hold such New Alithya Subordinate Voting Shares and Edgewater Common Stock in the course of carrying on a business or as part of an adventure or concern in the nature of trade.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular investor. Accordingly, prospective investors are urged to consult their own tax advisors with respect to their particular circumstances.

This summary is based upon the current provisions of the Tax Act, the regulations thereunder, all specific proposals to amend the Tax Act and the regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof, the Canada-United States Tax Convention (1980), as amended (the “Treaty”), the Fifth Protocol to the Treaty signed on September 21, 2007 (the “Protocol”), and Canadian tax counsel’s understanding of the current administrative practices published by the Canada Revenue Agency. This summary does not otherwise take into account any changes in law, whether by legislative, governmental or judicial decision or action, nor does it take into account or consider any provincial, territorial or foreign income tax considerations.

Generally, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of New Alithya Subordinate Voting Shares must be converted into Canadian dollars based on exchange rates as determined in accordance with the Tax Act. The amount of dividends, if any, required to be included in the income of, and capital gains or capital losses realized by, a Holder may be affected by fluctuations in the Canadian / U.S. dollar exchange rate.

Holders Resident in the U.S.

This portion of the summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act and the Treaty: (i) is a resident of the U.S., (ii) is not, and is not deemed to be, a resident of Canada, (iii) does not have a “permanent establishment” or “fixed base” in Canada, and (iv) does not use or hold, and is not deemed to use or hold, the New Alithya Subordinate Voting Shares or Edgewater Common Stock in a business carried on in Canada (a “U.S. resident holder”). Special rules, which are not discussed in this summary, may apply to a U.S. resident holder that is an insurer that carries on an insurance business in Canada and elsewhere.

The Merger

There are no Canadian tax consequences as a result of the merger to a U.S. resident holder.

Ownership of New Alithya Subordinate Voting Shares

Dividends on New Alithya Subordinate Voting Shares

Dividends paid or credited, or deemed under the Tax Act to be paid or credited, to a U.S. resident holder on New Alithya Subordinate Voting Shares are subject to Canadian withholding tax under the Tax Act at the rate of 25%; however, the rate of Canadian withholding tax applicable to a U.S. resident holder is generally reduced to 15% under the Treaty. A U.S. resident holder must not be subject to the limitation on benefits restrictions in the Treaty to be entitled to the 15% withholding tax rate on dividends on the New Alithya Subordinate Voting Shares.

Disposition of New Alithya Subordinate Voting Shares

A U.S. resident holder for whom New Alithya Subordinate Voting Shares are not “taxable Canadian property” will not be subject to tax under the Tax Act on the disposition of such shares. Generally, provided that New Alithya Subordinate Voting Shares are listed on a “designated stock exchange” (which includes the TSX and NASDAQ), New Alithya Subordinate Voting Shares will not be taxable Canadian property to a U.S. resident holder at a particular time unless at any time during the 60-month period immediately preceding that time (a) one

 

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or any combination of (i) the U.S. resident holder, (ii) persons with whom the U.S. resident holder did not deal at arm’s length, or (iii) partnerships in which the U.S. resident holder or a person with whom the U.S. resident holder did not deal at arm’s length held a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of any class or series of the capital stock of New Alithya, and at that time (b) more than 50% of the fair market value of New Alithya Subordinate Voting Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act) or an option in respect of, an interest in, or for civil law a right in, any such property, whether or not such property exists. New Alithya Subordinate Voting Shares may also be deemed to be taxable Canadian property of a U.S. resident holder in certain circumstances.

In the event that New Alithya Subordinate Voting Shares are taxable Canadian property to the U.S. resident holder, a capital gain realized by a U.S. resident holder on the disposition of New Alithya Subordinate Voting Shares will generally be exempt from Canadian tax under the Treaty. A U.S. resident holder must not be subject to the limitation on benefits restrictions in the Treaty to be entitled to exemption from Canadian tax on capital gains realized on the disposition of New Alithya Subordinate Voting Shares.

Holders Resident in Canada

This portion of the summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act, is, or is deemed to be resident in Canada (a “Canadian resident holder”). Certain Canadian resident holders may be entitled to make, or may have already made, the irrevocable election under subsection 39(4) of the Tax Act, the effect of which may be to deem the New Alithya Subordinate Voting Shares (and all other “Canadian securities” as defined in the Tax Act) owned by such Canadian resident holder to be capital property in the taxation year in which the election is made and in all subsequent taxation years. Canadian resident holders to whom New Alithya Subordinate Voting Shares might not otherwise be considered capital property should consult their own tax advisors regarding this election.

This portion of the summary is not applicable to a Canadian resident holder (i) that is a “specified financial institution” as defined in the Tax Act, (ii) an interest in which is a “tax shelter investment” as defined in the Tax Act, (iii) that is a “financial institution” for the purposes of the mark-to-market rules in the Tax Act, (iv) that makes or who has made an election under section 261 of the Tax Act to report its “Canadian tax results” as defined in the Tax Act in a currency other than the Canadian currency, or (v) that is a corporation that, or is a corporation that does not deal at arm’s length for purposes of the Tax Act with a corporation resident in Canada that, is or becomes, as part of a transaction or event or series of transactions or events that includes the acquisition of the New Alithya Subordinate Voting Shares, controlled by a non-resident corporation for the purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Canadian resident holder should consult their own tax advisors.

The Merger

A Canadian resident holder who will dispose of an Edgewater Common Stock in consideration for New Alithya Subordinate Voting Shares as part of the merger 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, are greater (or less) than the adjusted cost base of the Edgewater Common Stock to the Canadian resident holder. The tax treatment of capital gains and capital losses is discussed below under “—Disposition of New Alithya Subordinate Voting Shares.”

The proceeds of disposition of Edgewater Common Stock that will be exchanged for New Alithya Subordinate Voting Shares as part of the merger will be equal to the fair market value of such New Alithya Subordinate Voting Shares received on the merger.

 

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Ownership of New Alithya Subordinate Voting Shares

Dividends on New Alithya Subordinate Voting Shares

Dividends received or deemed to be received on New Alithya Subordinate Voting Shares by an individual Canadian resident holder (including certain trusts) will be included in computing the individual’s income and will be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received from taxable Canadian corporations, including an enhanced gross-up and dividend tax credit for dividends designated as “eligible dividends” by New Alithya. Dividends received or deemed to be received on New Alithya Subordinate Voting Shares by a Canadian resident holder that is a corporation will be included in computing its income and will generally be deductible in computing taxable income. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Canadian resident holder that is a corporation as proceeds of a disposition or a capital gain. A Canadian resident holder that is a “private corporation” or a “subject corporation” (each as defined in the Tax Act) may be liable to pay a 38 13% refundable tax under Part IV of the Tax Act on dividends received or deemed to be received on the New Alithya Subordinate Voting Shares to the extent that such dividends are deductible in computing the Canadian resident holder’s taxable income.

Disposition of New Alithya Subordinate Voting Shares

Generally, a Canadian resident holder who disposes or is deemed to dispose of a New Alithya Subordinate Voting Share 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, are greater (or less) than the adjusted cost base of the New Alithya Subordinate Voting Share to the Canadian resident holder.

The adjusted cost base to a Canadian resident holder of a New Alithya Subordinate Voting Share that was acquired as part of the merger will generally be equal to the fair market value of such share to such holder at the time of the merger.

One-half of any capital gain (a “taxable capital gain”) realized must be included in the Canadian resident holder’s income. Subject to and in accordance with the provisions of the Tax Act, one-half of any capital loss (an “allowable capital loss”) must be deducted against taxable capital gains realized in the year of disposition. Any unused allowable capital losses may be applied to reduce net taxable capital gains realized in any of the three prior years or in any subsequent year in the circumstances and to the extent provided in the Tax Act.

A Canadian resident holder that is throughout the year a “Canadian-Controlled Private Corporation” (as defined in the Tax Act) may be liable to pay a refundable tax at a rate of 10 23% on certain investment income, including taxable capital gains. Canadian resident holders that are “Canadian-Controlled Private Corporations” should consult their own tax advisors regarding their particular circumstances.

THE U.S. FEDERAL AND CANADIAN FEDERAL INCOME TAX CONSEQUENCES SUMMARIZED ABOVE ARE FOR GENERAL INFORMATION ONLY. EACH HOLDER OF EDGEWATER COMMON STOCK OR NEW ALITHYA SUBORDINATE VOTING SHARES SHOULD CONSULT SUCH HOLDER’S TAX ADVISOR AS TO THE CONSEQUENCES OF THE MERGER AND ARRANGEMENT AND AN INVESTMENT IN NEW ALITHYA SUBORDINATE VOTING SHARES IN LIGHT OF SUCH HOLDER’S PARTICULAR CIRCUMSTANCES.

 

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DELAWARE APPRAISAL RIGHTS

Appraisal rights are statutory rights under Delaware law that enable shareholders who object to certain extraordinary transactions to demand payment in cash of the fair value of their shares instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. However, appraisal rights are not available in all circumstances.

Under Delaware law, holders of shares of any class or series of stock of a constituent corporation in a merger or consolidation have the right, in certain circumstances, to dissent from such merger or consolidation by demanding payment in cash for their shares equal to the fair value of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, as determined by a court in an action timely brought by the surviving or resulting corporation or the dissenters. No appraisal rights are available for shares of any class or series of stock that, as of the record date fixed to determine the stockholders entitled to receive notice of the meeting to act upon the agreement of merger, are listed on a national securities exchange or held of record by more than 2,000 holders, unless the agreement of merger or consolidation requires the holders thereof to accept for such shares anything other than: shares of stock of the surviving corporation; shares of stock of another corporation, which shares of stock are either listed on a national securities exchange or held of record by more than 2,000 holders; cash in lieu of fractional shares of the stock described in the first two points above; or some combination of the above.

Therefore, because the shares of Edgewater Common Stock are listed on NASDAQ, and holders of shares of Edgewater Common Stock will receive in the transactions New Alithya Subordinate Voting Shares which are expected to be publicly listed on NASDAQ, holders of shares of Edgewater Common Stock will not be entitled to appraisal rights in the transactions contemplated by the arrangement agreement (including the merger).

 

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LISTING OF NEW ALITHYA SUBORDINATE VOTING SHARES ON NASDAQ AND THE TSX

It is a mutual condition to the completion of the transactions that the New Alithya Subordinate Voting Shares be approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the TSX (subject only to satisfaction of customary listing conditions). New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX.

Edgewater Common Stock will be delisted from NASDAQ and deregistered under the Exchange Act upon or as soon as practicable after the completion of the transactions, and Edgewater will no longer be required to file periodic reports with the SEC.

 

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VOTE OF EDGEWATER STOCKHOLDERS REQUIRED TO ADOPT THE ARRANGEMENT AGREEMENT; BOARD RECOMMENDATION

The affirmative vote of the holders of a majority of the shares of Edgewater Common Stock outstanding on the record date for the special meeting is required for the approval of the proposal to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger).

The Edgewater board of directors recommends that the Edgewater stockholders vote “FOR” the proposal to approve and adopt the arrangement agreement and the transactions contemplated thereby (including the merger).

 

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THE COMPANIES

New Alithya

New Alithya is a private company incorporated under the laws of Québec on March 8, 2018 for the purpose of holding Alithya and Edgewater following completion of the transactions. On September 10, 2018, New Alithya changed its name to Alithya Group inc. To date, New Alithya has not conducted any activities other than those incident to its formation, the execution of the arrangement agreement and the taking of certain steps in connection thereto, including the preparation of applicable filings under the U.S. securities laws and regulatory filings made in connection with the transactions.

Following the consummation of the transactions, Alithya and Edgewater will be wholly-owned subsidiaries of New Alithya. Based on the number of New Alithya Shares to be issued upon consummation of the transactions (excluding any New Alithya Subordinate Voting Shares which may be issued to investors in Alithya’s anticipated private placement prior to or contemporaneously with the closing of the transactions), the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 42% and 58% of the total number of outstanding New Alithya Shares on a fully-diluted basis, respectively. However, because New Alithya Multiple Voting Shares will be issued only to those Alithya shareholders which now hold Alithya Multiple Voting Common Shares, the former stockholders of Edgewater and the former shareholders of Alithya are expected to own approximately 18% and 82% of the total voting power of New Alithya Shares, respectively, upon consummation of the transactions.

It is a mutual condition to the transactions that as of the effective time, the New Alithya Subordinate Voting Shares will be conditionally approved for listing on NASDAQ (subject only to official notice of issuance) and conditionally approved for listing on the TSX (subject only to satisfaction of customary listing conditions). New Alithya has applied for listing of the New Alithya Subordinate Voting Shares on NASDAQ and the TSX under the symbol “ALYA.” Neither NASDAQ nor the TSX has conditionally approved New Alithya’s listing applications and there is no assurance that either or both of NASDAQ or the TSX will approve New Alithya’s listing applications. Any such listing of the New Alithya Subordinate Voting Shares will be conditional upon New Alithya fulfilling all of the listing requirements and conditions of NASDAQ and the TSX.

Foreign Private Issuer

Upon consummation of the transactions, New Alithya is expected to be a foreign private issuer under applicable U.S. federal securities laws, and therefore, it will not be required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act. See “Risk Factors—Risks Related to the New Alithya Subordinate Voting Shares—New Alithya is expected to be a foreign private issuer and subject to different U.S. securities laws and regulations and corporate governance requirements than a domestic U.S. issuer” on page 49.

Emerging Growth Company

Upon consummation of the transactions, New Alithya is expected to be an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, New Alithya will be eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain shareholder approval of any golden parachute payments not previously approved.

New Alithya could remain an emerging growth company until the last day of its fiscal year following the fifth anniversary of the consummation of the transactions. However, if (i) either (x) New Alithya’s

 

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non-convertible debt issued within a three-year period exceeds U.S.$1.0 billion or (y) its total revenues exceed U.S.$1.07 billion or (ii) it is deemed to be a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, New Alithya would cease to be an emerging growth company as of the following fiscal year.

Alithya

Alithya is a leading Canadian strategy and digital technology consulting firm offering a full range of services in strategy, architecture, organizational performance, transformation and solution delivery. Alithya prioritizes the achievement of business objectives on every project through the optimal use of digital technology. Alithya’s core business offerings include technology consulting, strategic consulting and hiring solutions. Its clients are mainly active in financial services, insurance, telecommunications, energy, transportation, health care, retail and government service. Alithya also closely collaborates with several strategic partners, including Oracle and Microsoft, to provide its clients with solutions best suited to their needs.

Upon consummation of the transactions, Alithya would become a wholly-owned subsidiary of New Alithya.

Edgewater

Edgewater is a Delaware corporation which offers strategic IT consulting services designed to assist its clients in improving financial and operations performance across their enterprises. Delivering both on premise and in the cloud, Edgewater offers two major channel-based services. In the Oracle channel, Edgewater Ranzal provides business analytics solutions leveraging Oracle EPM, Business Intelligence and Big Data technologies. In the Microsoft channel, Edgewater Fullscope delivers Dynamics AX ERP, Business Intelligence and CRM solutions primarily in the manufacturing area. See “Information About Edgewater” beginning on page 191. Shares of Edgewater Common Stock trade on NASDAQ under the symbol “EDGW.”

Upon consummation of the transactions, Edgewater would become a wholly-owned subsidiary of New Alithya.

Edgewater’s executive offices are located at 200 Harvard Mill Square, Suite 210 (prior to October 1, 2018) or Suite 320 (beginning October 1, 2018), Wakefield, MA 01880, and its telephone number is (781) 246-3343. For additional information on Edgewater and its business, see “Where You Can Find More Information” beginning on page 236.

U.S. Merger Sub

U.S. Merger Sub is a Delaware corporation and a wholly-owned subsidiary of New Alithya, incorporated on March 14, 2018. To date, U.S. Merger Sub has not conducted any activities other than those incident to its formation, the execution of the arrangement agreement and the taking of certain steps in connection therewith. Upon consummation of the transactions, U.S. Merger Sub would merge with and into Edgewater, with Edgewater as the surviving corporation and becoming a wholly-owned subsidiary of New Alithya.

 

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THE ARRANGEMENT AGREEMENT

The following is a summary of certain material terms of the arrangement agreement and is qualified in its entirety by reference to the complete text of the arrangement agreement, which is incorporated into this prospectus/proxy statement by reference in its entirety and attached as Annex A to this prospectus/proxy statement. Edgewater and Alithya urge you to read carefully this entire prospectus/proxy statement, including the annexes and the documents incorporated by reference. You should also review the section entitled “Where You Can Find More Information” beginning on page 236.

The arrangement agreement has been included to provide you with information regarding its terms, and Edgewater and Alithya recommend that you read the arrangement agreement carefully and in its entirety. Except for its status as the contractual document that establishes and governs the legal relations among the parties with respect to the merger and arrangement, Edgewater and Alithya do not intend for the arrangement agreement to be a source of factual, business or operational information about the companies. The arrangement agreement contains representations and warranties of the parties as of specific dates and may have been used for purposes of allocating risk between the parties rather than establishing matters as facts. Those representations and warranties are qualified in several important respects, which you should consider as you read them in the arrangement agreement. The representations and warranties are qualified in their entirety by certain information Edgewater filed with the SEC prior to the date of the arrangement agreement, as well as by confidential disclosure letters that Edgewater and Alithya delivered to each other in connection with the execution of the arrangement agreement, and are qualified by contractual standards of materiality that may differ from what stockholders consider to be material. Information concerning the subject matter of the representations and warranties may have changed since the date of the arrangement agreement and new information qualifying a representation or warranty may have been included in this prospectus/proxy statement. For the foregoing reasons, you should not rely on the representations and warranties contained in the arrangement agreement as statements of factual information.

Alithya, Edgewater, New Alithya and U.S. Merger Sub entered into the arrangement agreement on March 15, 2018. On September 10, 2018, the parties entered into Amendment No. 1 to the Arrangement agreement (“Amendment No. 1”) mutually agreeing to amend certain terms of the arrangement agreement, including:

 

   

extending the outside date to December 15, 2018;

 

   

clarifying certain deliverables of Edgewater to Alithya prior to closing;

 

   

clarifying the timing and procedure of the declaration and payment of the Edgewater special dividend;

 

   

clarifying the calculation of the exchange ratio; and

 

   

removing the delivery of a legal opinion relating to Section 7874 of the Code as a closing condition for both Alithya and Edgewater.

The above summary describes the material terms of Amendment No. 1 but is not a complete description and is qualified in its entirety by reference to Amendment No. 1, which is incorporated into this prospectus/proxy statement by reference in its entirety and attached as part of Annex A to this prospectus/proxy statement. The following description of the arrangement agreement gives effect to Amendment No. 1.

Closing of the Merger and the Arrangement

Unless the arrangement agreement is terminated prior to such time (see “—Termination of the Arrangement Agreement” beginning on page 135), the closing of the merger and the arrangement will occur on a date to be specified by Edgewater and Alithya, which will likely be the first business day following the satisfaction or waiver of all of the conditions set forth in the arrangement agreement (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions).

 

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As soon as practicable on the closing date, the parties will file the certificate of merger with the Secretary of State of the State of Delaware and make any and all other filings required under the DGCL or by the Secretary of State of the State of Delaware. On the terms and subject to the conditions of the arrangement agreement, at the merger effective time, U.S. Merger Sub will be merged with and into Edgewater and the separate existence of U.S. Merger Sub will cease. Edgewater will survive the merger as a wholly-owned subsidiary of New Alithya. For that purpose, Edgewater following the merger effective time is referred to as the “surviving corporation.”

The arrangement requires approval by the Québec court under Chapter XVI—Division II of the Business Corporations Act (Québec) ( “QBCA”). On September 26, 2018, Alithya obtained the interim order providing for the calling and the holding of the special Alithya shareholder meeting and other procedural matters related to the arrangement (the “interim order”). See the interim order, which is attached as Annex B to this prospectus/proxy statement.

Subsequent and subject to the approval of the arrangement resolution by Alithya shareholders at the special Alithya shareholder meeting in accordance with the interim order, the hearing in respect of an order of the Québec court approving the arrangement (the “final order”), will be scheduled. At the hearing, the Québec court will consider, among other things, the fairness and reasonableness of the arrangement. The Québec court may

approve the arrangement in any manner it may direct, subject to compliance with such terms and conditions, if any, as it deems fit. Participation in the hearing on the final order, including who may participate and present evidence or argument and the procedure for doing so, will be subject to the terms of the interim order.

Any Alithya shareholder or other person who wishes to participate, appear, be represented, and to present evidence or arguments at the hearing, must serve and file a notice of appearance (“notice of appearance”), and satisfy the other requirements of the Québec court, as will be outlined in the interim order. In the event that the hearing is postponed, adjourned or rescheduled then, subject to further direction of the Québec court, only those persons having previously served a notice of appearance in compliance with the interim order will be given notice of the new date. Assuming the final order is granted and the conditions to closing contained in the arrangement agreement are satisfied or waived, then the articles of arrangement of Alithya in respect of the arrangement (the “articles of arrangement”) that are required by the QBCA to be sent to the enterprise registrar appointed under section 1 of QBCA (the “enterprise registrar”) and the New Alithya articles, after the final order is made which shall be in form and substance satisfactory to each of Alithya and Edgewater, acting reasonably, will be filed with the enterprise registrar to give effect to the arrangement.

The New Alithya articles will include, among other things, (i) a restriction on the New Alithya Multiple Voting Shares such that they shall not be transferrable, other than to an affiliate, (ii) a conversion right into New Alithya Subordinate Voting Shares at the option of the holder of New Alithya Multiple Voting Shares and any applicable coattail rights as may be required.

Merger Consideration to Edgewater Stockholders; Special Dividend for Edgewater Stockholders

At the merger effective time, each share of Edgewater Common Stock then issued and outstanding, and all rights in respect thereof, will be cancelled and automatically converted into and become the right to receive 1.3118 newly issued New Alithya Subordinate Voting Shares (rounded up to the nearest whole share), without interest. However, Alithya has a termination right if the VWAP of the Edgewater Common Stock on NASDAQ for the 10 consecutive trading days ending on the date immediately preceding the ex-dividend date for the special dividend described below is less than U.S.$5.25, unless Edgewater agrees to adjust the exchange ratio to the effect that the equity value of the New Alithya Shares received by the Alithya shareholders is U.S.$110.0 million. The adjusted equity exchange ratio would be obtained by (a) multiplying the VWAP for the 10 consecutive trading days ending on the date immediately preceding the closing by the aggregate number of Alithya Common Shares and Alithya Multiple Voting Common Shares outstanding on the date the ratio is calculated, divided by (b) 110,000,000.

 

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In addition to the right of Edgewater stockholders to receive New Alithya Subordinate Voting Shares in the transactions, Edgewater will declare to Edgewater stockholders and option holders of record immediately prior to the anticipated closing date of the transactions a special dividend equal to U.S.$20.5 million, provided that (i) the total amount of the dividend will proportionately increase or decrease to the extent that Edgewater’s “Net Cash” (as defined in the arrangement agreement) is then greater or less than U.S.$8.5 million, as the case may be, and (ii) the dividend will be payable either in cash (for Edgewater’s stockholders) or reflected through adjustment (for holders of Edgewater’s options) to the exercise price of such options, as the case may be. Payment of the special dividend will be contingent upon the closing of the transactions and will be declared at least 10 days prior to, and be paid within 10 days following, such closing. The application of the adjustment formula described above will likely result in a special dividend amount that is less than U.S.$20.5 million. Based on Edgewater’s currently expected “Net Cash” as of the closing of the transactions, the total amount of the special dividend would have been approximately U.S.$16.0 million, or approximately U.S.$1.07 for each share of Edgewater Common Stock then outstanding (applying the full dilution, in-the-money options treatment to the current basic shares outstanding), if the closing had occurred immediately following September 27, 2018. However, the actual amount of the special dividend may be either higher or lower based on Edgewater’s business, financial condition and liquidity between September 27, 2018 and the dividend declaration date.

Arrangement Consideration to Alithya Shareholders

At the effective time, each Alithya Common Share and each Alithya Multiple Voting Common Share then issued and outstanding will be cancelled and automatically converted into the right to receive one newly issued New Alithya Subordinate Voting Share or one newly issued New Alithya Multiple Voting Share, respectively.

Treatment of Outstanding Edgewater Equity Awards

Each option to purchase a share of Edgewater Common Stock under the Edgewater equity incentive plans, whether vested or unvested, that is outstanding immediately prior to the merger effective time will be converted, on substantially the same terms and conditions as were applicable under such option before the merger effective time, into an option to acquire New Alithya Subordinate Voting Shares equal to the number of shares subject to the Edgewater option immediately prior to the merger effective time multiplied by the exchange ratio of 1.3118, at an exercise price per share equal to the exercise price per share applicable to such option immediately prior to the merger effective time divided by the exchange ratio of 1.3118, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

Each other equity award that is outstanding immediately prior to the merger effective time under Edgewater equity incentive plans will be converted, on substantially the same terms and conditions as were applicable under such equity award before the merger effective time, into a right to receive the number of New Alithya Subordinate Voting Shares equal to the number of shares subject to such equity award immediately prior to the merger effective time multiplied by the exchange ratio of 1.3118, subject to the potential adjustment of the exchange ratio described elsewhere in this prospectus/proxy statement.

In addition, purchase rights under ongoing offerings under Edgewater’s employee stock purchase program will be converted into purchase rights to acquire New Alithya Subordinate Voting Shares on substantially the same terms and conditions as were applicable before the merger effective time.

Each of the current Edgewater equity incentive plans and the employee stock purchase program will be terminated at the merger effective time.

Treatment of Outstanding Alithya Equity Awards

Each option to purchase an Alithya Common Share or an Alithya Multiple Voting Common Share under the Alithya stock option plan, whether vested or unvested, that is outstanding immediately prior to the effective time

 

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