Hartco Income Fund

Hartco Income Fund

February 24, 2009 16:36 ET

Hartco Income Fund Announces Proposed Conversion to Corporation

MONTREAL, QUEBEC--(Marketwire - Feb. 24, 2009) - Hartco Income Fund (TSX:HCI.UN) ("Hartco") today announced its intention to convert from an income fund to a corporation. Hartco will ask its unitholders to approve the reorganization at a special meeting expected to be held in April 2009.

Background and Benefits of the Reorganization

Hartco's management (the "Management") and Board of Trustees (the "Board") have recently conducted a review of Hartco's long-term strategic direction in order to effectively address the anticipated economic challenges ahead and to better position Hartco to pursue future growth opportunities. After investigating a number of restructuring alternatives, Hartco has determined that a corporate structure best aligns its core business model of growth and capital appreciation.

Management and the Board believe that the conversion to a corporation is the most prudent response to the current significant challenges in the market place. The conversion to a corporation will enable Hartco to reinvest a significant portion of its free cash flow into the business and focus on overall earnings and cash flow growth in order to capitalize on any growth opportunities that lie ahead. The decision to convert to a corporation also takes into account changes to the tax treatment of income funds which enter into effect in 2011.

Mechanics of the Reorganization

It is contemplated that the reorganization will be completed pursuant to a plan of arrangement. Holders of trust units of Hartco Income Fund will exchange their trust units for common shares of a new corporation, to be called "Hartco Inc.", on a one-for-one basis. Holders of "tracking shares" of Hartco Investments Inc., an affiliated corporation, will also exchange their shares for common shares of the new corporation on the same one-for-one basis. This will result in approximately 13.6 million common shares of Hartco Inc. being issued and outstanding after giving effect to the reorganization. Hartco Inc. will apply to the Toronto Stock Exchange for the listing of its common shares and Hartco Income Fund will seek the delisting of its trust units from the TSX upon completion of the reorganization. The listing of Hartco Inc. will be subject to fulfilling all of the listing requirements of the TSX.

Following the conversion, the composition of the board of directors of the resulting public corporation will be the same as that of the current Board.

The conversion to a corporation is expected to be completed on a tax free "rollover" basis for Canadian income tax purposes. Following the issuance by the federal Minister of Finance on February 2nd, 2009 of proposed legislation governing the conversion of income trusts to corporations, unitholders should be able to defer any capital gain or loss resulting from the exchange of their Fund units for common shares of the new corporation without the need to complete and file income tax elections.The proposed reorganization will be subject to receipt of all required court and regulatory approvals and approval by at least 66 2/3% of the votes cast by securityholders of Hartco Income Fund (unitholders and holders of special voting units voting together as a single class). Mr. Harry Hart, the principal unitholder, Chairman and Chief Executive Officer of the Fund, holding approximately 60% of Hartco's outstanding units, has signed a support agreement with Hartco under which he has agreed to vote in favour of the proposed reorganization. Hartco expects that a special meeting of the Fund at which the proposed reorganization will be considered will be held in April 2009 and that a management proxy circular will be mailed to unitholders of the Fund in March 2009.

The proposed reorganization is also subject to approval by at least 66 2/3% of the votes cast by shareholders of Hartco Investments Inc., an affiliated corporation. A special meeting of shareholders of Hartco Investments Inc. will be held immediately prior to the special meeting of the Fund. Mr. Harry Hart holds approximately 95% of the outstanding shares of Hartco Investments Inc. eligible to vote at the special meeting.

Complete details of the terms of the Plan of Arrangement are set out in the Arrangement Agreement that Hartco will file shortly on SEDAR (www.sedar.com).

Recommendation of the Board

The Board has unanimously concluded that the proposed reorganization is in the best interests of Hartco and has unanimously recommended that Hartco securityholders vote their trust units and special voting units in favour of the reorganization.

Dividend Policy

Following completion of the reorganization, Hartco Inc. will establish a dividend policy, taking into account its cash flow and capital requirements at the time, and its intention to reinvest a significant portion of its free cash flow into the business.

Fund Profile

Hartco Income Fund (TSX:HCI.UN) has been a leader in the Canadian information technology business for more than thirty years. Through its operating divisions, which together include more than 60 locations operating across Canada under the banners of Metafore™, MicroAge®, Microserv® and Northwest Digital®, Hartco Income Fund delivers information technology solutions to private and public sector organizations of every size.

Forward-Looking Statements

This news release contains forward-looking information. Except for historical information contained herein, the statements in this document are forward-looking. Forward-looking statements involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customer demand for information technology products or services, changes in supplier pricing actions or terms, customer orders, pricing actions by competitors, changes in laws and regulations and general changes in economic conditions. Risks that could cause our results to differ materially from our expectations are discussed in our annual Management's Discussion & Analysis.

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