Report of the Makivik Structural

Review Committee

Presented to:
Makivik Annual General Meeting
March 20-24, 2017

1
Background
Makiviks Financial Sustainability
Observations made at
October 3-7 2016 Board of
Directors Meeting
Makiviks Beneficiaries Equity has not grown sufficiently over
the years to take into consideration inflation and population
growth.
Makivik relies heavily on funding emanating from the Sanarrutik
Agreement to not only fund various initiatives previously funded
internally but also to fund community projects and requests of
other organizations.
A review of Makiviks investments highlighted that not all have in
the past nor are they presently producing an acceptable cash
return for Makivik ;
A review of the effectiveness of Makiviks current governance
structure suggested improvements must be made to the
business operations of the Corporations subsidiaries and joint
ventures as well as to Makiviks ability to take greater advantage
of new business opportunities;
It was also noted that there has in the past and continues to be
political interference in the business decision process to the
detriment of Makiviks investments.
2
 Makiviks Beneficiary Equity

Beneficiaries Equity has not kept up Compensation Monies Inflation Population Growth
with inflation and population growth. $417.4 $643.8 million
Makivik now has to serve three times the
population compared to 40 years ago
with the same purchasing power as 40
years ago; 274.1

47.7
The KPMG Structural Review clearly
stated that in order to better achieve its
objectives, Makivik would need to cut its 210.5 210.5
expenses by $3 million per year as well
as increase the income generated from
its investments.
159.2 159.2

BENEFICIARIES' EQUITY @ SEPT 30 2016 WHAT BENEFICIARIES' EQUITY SHOULD

BE GIVEN INFLATION AND POPULATION
GROWTH

3
 Makiviks Financial Sustainability
Realized revenues excluding Sanarrutik, Ungaluk
35,000,000
and Nunavik Inuit Trust recoveries versus actual
expenditures
30,000,000

Makivik has become heavily reliant on funding from 25,000,000

Sanarrutik, Ungaluk and the Nunavik Inuit Trust to
recover the cost of certain projects (such as the
income tax project, Ivakkak, losses of certain failed 20,000,000

economic development projects etc.) or for

distributions to other Nunavk organizations or 15,000,000
communities some of which had previously been
funded directly by Makivik;
10,000,000
As the attached chart shows, without these additional
funding sources (which are not infinite), Makiviks
realized revenues have been significantly less than its 5,000,000

actual expenditures;
-
2017-
2010 2011 2012 2013 2014 2015 2016
Budget
Revenues 9,275,989 11,262,23 8,372,614 9,154,496 16,506,67 22,900,60 28,696,00 23,073,61
Expenditures 16,845,87 22,006,20 18,832,08 21,509,75 23,078,60 22,793,87 20,116,63 23,491,80

The figures above exclude Sanarrutik and Ungaluk recoveries, 4

Nunavik Inuit Trust recoveries, Unrealized gains or losses,
Equity earnings of Subsidiaries & JVs and Depreciation
 SANARRUTIK CONTRIBUTIONS TO OTHER ORGANIZATIONS
Makiviks Financial Sustainability

Organization 2016-17 Total Amounts

From 2002 to date, Makivik has received $311 million Allocation Disbursed
funding through the Sanarrutik Agreement (inclusive 2002-2016
of the Ungaluk program monies);
Nunavik LHC Association 334,795 4,954,065
It is anticipated that the Sanarrutik Agreement will
provide over $1 billion in funding to both KRG and
Makivik; Nunavik LHCs 1,820,094 19,770,996
The attached chart shows Sanarrutik funding issued to
NHFTA 430,978 4,856,384
various organizations since 2002;
The Agreement ends in 2027 and there is no
Saputiit and Qarjuit 430,978 4,885,886
guarantee that the Sanarrutik Agreement will be
replaced with either the same type of agreement or an
agreement of the same financial magnitude as the Avataq 1,138,296 11,115,713
present one.
What will these organizations and for that matter Taqramiut Nipingat 430,978 5,115,072
Makivik do if and when Sanarrutik funding is no longer
available? Nunavik Tourism 100,000 1,353,125
Association
Total $4,686,119 $52,051,241
Realized Return on Investments Fiscal Year Ended September 30, 2016
A B C D E
Investments Average Holdings % to Total Forecast % to Total
Y/E Sept 30 2016 Holdings Realized Realized
(in Millions) Return F/Y Returns
2015-16 (in
Millions)
Portfolio $ 150.0 40% $ 14.0 43%

Third Party Loans 26.8 7% 1.4 4%

Shares and Accumulated Equity

in Subsidiaries and JVs 114.1 30% 3.9 12%

Loans to Subsidiaries 85.0 23% 5.7 18%

Shrimp Licenses 0 0% 7.6 23%

Total $ 375.9 100% $32.6 100%

6
 Profits/Losses of Subsidiaries

Ayapiqvik (1985) (516,621) Air Inuit (including subs)

Inuit Leasing (1985) (1,819,755) First Air
Chaperal Charters (85) ( 249,722) NEAS Group
Imaqpik Fisheries (85) (6,454,833) Kautaq Construction
Uttituk Leasing (1997) ( 342,645) Nunavik Geomatics
Halutik Fuel (1,479,000) Total 226,085,000
Kigiak Builders (1993) (4,788,994)
Kigaq Travel Agency ( 261,591)
Nunavik Arctic Foods 1 (2,141,728)
Nunavik Arctic Foods 2 (3,413,883)
Nunavik Arctic Foods 3 ( 361,797)
3 Cold Rooms (NAF) (3,037,201)
Cruise North (5,603,922)
Nunavik Creations (6,779,699)
Nunacell (2,402,789)
Nunavik Bio Sciences (5,335,700) 7

Total (44,989,800)
Structural Review Committee

Membership:

Rhoda Kokiapik Raymond Menarick

Raymond Mickpegak Sam Silverstone

Committee was
created at the Adam Lewis Eileen Klinkig
October 3-7, 2016 Mandate:
Makivik Board of
Directors Meeting The mandate of the Committee is to study, review, analyze and make
recommendations to the Board of Directors with regard to the most effective and
appropriate structure(s) for the Corporation to adopt to improve the business
operations of the Corporations subsidiaries and joint ventures and improve its ability
to take greater advantage of new business opportunities, the whole with a view to
minimizing political influence in business decision-making;
Timeframe:

The Committee is to provide a written report to the Board of Directors by no later

than February 28, 2017 8
 Structural Review
Committee Since the October 2016 Board meeting, the Committee
has met on four occasions as follows:
- November 10, 2016
NUNATSIAVUT GROUP OF COMPANIES - December 8-9, 2016
- 9 subsidiaries - January 25, 2017
- Total Revenues - $41 million
- February 13-14, 2017
CREECO
- 6 subsidiaries
A report by the Consilium Consulting Group: Exploring
New Paths wherein ten land claims organizations were
- Total Revenues - $140 million interviewed regarding how their business operations are
MAKIVIK conducted was reviewed. All Inuit land claims
- 7 subsidiaries, 4 non-wholly owned subs organizations conduct their business through a separate
development corporation.
- Total Revenues $400 million
At the December 8-9, 2016 meeting the Committee met
with Clint Davis of the Nunatsiavut Group of Companies as
well as with Jack Blacksmith and Albert Rondeau of
Creeco (Cree Regional Economic Enterprises Company)

9
 Land Claims
Organization

Development
Corporation

Subsidiar Subsidiar Subsidiar Subsidiar Subsidiar Subsidiar

y y y y y y

Makivik
Corporation
Bradley Air
Kautaq Nunavik Nunavik
Services (First Air Inuit NEAS Halutik Fuels
Construction Geomatics Creations
Air)
10
Committee Recommendations to the Makivik Board
of Directors
The Committee is of the opinion that in order to improve Makiviks business
operations and improve its ability to take greater advantage of new
business opportunities, it is in order for Makivik to create a separate
business development arm;
The Committee is also of the opinion that decisions must be made based on
clear business fundamentals set apart from any political influence;
The Committee, therefore, recommends the creation of a new corporate
entity which would hold all of the voting shares in Makiviks wholly-owned
subsidiaries and with Power of Attorney and Proxy to represent Makivik in
non-wholly owned subsidiaries and JVs; 11
Proposed Corporate Structure

Makivik
Corporation
Makivik would own
100% of voting and
Makivik would own Makivik would continue to own
participating
voting and participating shares
100% of participating shares in Dev Co
in non-wholly owned
shares ($) Dev Co subsidiaries and joint ventures
of wholly owned
Dev Co would own however would grant Power of
subsidiaries
100% voting shares Attorney and Proxy to Dev Co
to vote all Makivik
shares/holdings.

First Air Nunavik Nunavik Kautaq Halutik

Air Inuit
Creations Geomatics Constr. Fuel

NEAS PAIL UNAAQ POWERCO

12
 Proposed Share Structure Subsidiaries, Joint Ventures and Partnerships
Wholly Owned Subsidiaries
New share classes would be created in all
wholly owned subsidiaries (both existing and
future):
One class to hold all voting rights which will
be issued to DevCo for a nominal dollar value
(referred to as <Voting Shares>)
The other class (with all economic value) will
not hold any voting rights but will have the
right to participate in the profits of the
Company. These shares would be issued to
Makivik and effectively would represent the
dollar value of share equity (referred to as
<Participating Shares>)
Dividends and interest on loans would
continue to flow directly to Makivik as is
presently the case
Non-Wholly Owned Subsidiaries
and Joint Ventures
All voting and participating equity will continue
to be held by Makivik Corporation;
Makivik to grant full Power of Attorney and
Proxy to DevCo to represent Makivik both on
the Board of Directors and to exercise its
voting rights;
Dividends and interest on loans would
continue to flow directly to Makivik as is
presently the case
13
Distribution of Investments/Assets between Makivik and Dev Co

Makivik Corporation Dev Co

Investment Portfolio Voting Shares in
First Air
Stocks
Air Inuit
Bonds Nunavik Geomatics
Money Market Investments Nunavik Creations
Real Estate Investments Kautaq Construction
Halutik Fuel
Fisheries Royalties
as well as any new business venture going forward
Participating ($) Shares and Loans to Dev Co Power of Attorney and Proxy over Makiviks Voting Shares
and Dev Co Wholly-Owned Subsidiaries in non-wholly owned Subsidiaries and Joint Ventures
including:
Voting and Participating ($) shares in non- NEAS
wholly owned subsidiaries and JVs Pan Arctic Inuit Logistics
Powerco
Unaaq Fisheries 14

DevCo CEO and CFO to provide full
report on all operations to the
Makivik Board a minimum of three
times per year;
Full DevCo Board to meet with
Makivik Board of Directors annually;
Dev Co to provide quarterly reports
to the IRC and to provide the IRC
with standardized financial reports
on all subsidiaries
Dev Co
Proposed Objectives
To manage and oversee Makiviks existing wholly owned
subsidiaries as well as Makiviks interests in existing non-wholly
owned subsidiaries and joint ventures
To create, invest in, operate and manage active business
investments that are compatible with the visions and goals of
Makivik both in and outside of the Nunavik region.
To the extent possible, such businesses should support Makiviks
objectives through job creation and employment opportunities
for Makivik beneficiaries and/or contribute to improving the
quality of life in Nunavik communities or the region as a whole;
and
All such businesses should have a reasonable expectation of
profit and should provide Makivik with an annual cash return on
its investment whether same be in the form of loans, equity etc.
To pursue all potentially profitable business ventures in the
Nunavik region on a competitive basis but in regard to local and
regional entities seeking to invest in similar opportunities, shall
in good faith make reasonable efforts to collaborate or joint15
venture with such local or regional entities.
 Dev Co and Subsidiary Governance
Makivik
Board of Directors
Appoints 6 member
Board of Directors of Dev
Co according to
established criteria
Makes recommendations
to the Board of DevCo
with regard to the
appointment of the 3
members from amongst
JBNQA beneficiaries to
the Boards of First Air and
Air Inuit
Dev Co
Board of Directors
Selects and appoints
Senior Management of
Dev Co (ie. CEO, CFO
etc.)
DevCo Board of Directors
to sit as Board Members
on all subsidiaries and JVs
with the exception of
First Air and Air Inuit
Appoints 6 member
Board of Directors on
each of the Air Inuit and
First Air Boards of
Directors in accordance
with established criteria
President/CEO of DevCo
to sit as a non-voting
member on all BODs of
subsidiary companies
Subsidiary
Boards of Directors
Selects and appoints
Senior Management of
Subsidiary companies (ie
CEO, VPs and CFO etc.)
President and CEO of
Subsidiary to liaise on day
to day operations of the
subsidiary company with
the President and CEO of
Dev Co.
16
 DevCo, First Air and Air Inuit
Board of Directors Composition

Each of the Board of Directors would consist of 6 members as follows:

3 JBNQA Beneficiaries with business experience who are not employees of Makivik
nor members of the Makivik Board of Directors;

3 individuals who are independent from Makivik (ie. not employees of Makivik or its
subsidiaries) and not members of the Makivik Board of Directors with both
business experience and a professional designation who may or may not be a
JBNQA Beneficiary.

Appointment of the above individuals would be subject to a Board Member Selection

Process.
17
 Ultimate approval
resides with
Makivik Makivik BOD
Board of Directors
including Executives

Investment Review Committee (IRC)

Develop / maintain a screening process/protocol outlining minimum requirements for
Directors on the subsidiaries
Acts as a selection committee and recommends candidates to the Makivik Board to be
appointed/recommended to various board positions;
Review and issue recommendations to the Makivik Board of Directors on all matters at the
subsidiary or JV level with regard to the acquisition of and/or expansion of subsidiaries,
financing requirements of the JV or subsidiary, including capital investments, borrowings,
guarantees the whole as stipulated in Makivik Investment Policy

Dev Co Board of Directors

Approve all matters as concerns the day to day operations of DevCo or the operating companies as the case may be.
DevCo Board on its own behalf and on behalf of the Operating Companies including on behalf of First Air and Air Inuit will
bring all matters requiring capital investments, borrowings, guarantees etc. to the Makivik Investment Review Committee 18
for review.Neither Dev Co nor its Subsidiary Boards will have the right to leverage the assets of one subsidiary to finance
the other provide cross-guarantees or collateralization by one subsidiary in favour of another.
 Funding of DevCo Operations

Management Fees currently charged by Makivik to certain subsidiaries

would in whole or in part be payable to Dev Co to cover in part its operations
including Director Fees;

To such end, an evaluation of the services which would continue to be

provided by Makivik to its subsidiaries such as legal services needs to be
evaluated to ensure that Makivik is adequately compensated for such
services

Makivik would pay a management fee to Dev Co to cover the difference

between fees charged by DevCo to the various subsidiaries and its operating
costs.
19
 Economic Development Department Role

Economic Development Initiatives (all potential sectors)

Activities that enhance the economic base, sustainability and competitiveness of the Nunavik region
Strategic planning
Labour market development
Feasibility studies
Marketing studies
Export market research (developing and expanding export markets)
Enhancing access to economic and business information & services
Supporting innovation, applied research & development / commercialization

Economic Development Department will continue to be the gateway and facilitator as concerns Companies seeking
business opportunities within the Nunavik region and will work in collaboration with DevCo senior management.

20
 DevCo DevCo
Pros Cons
Creates a structure which enables business decisions which minimizes
political interference; There will be a transitional period in which leadership and the population
Brings independent, professional and expert input into business decision- will have to adjust to Makivik no longer having direct control over its
making; subsidiaries (this was/is not the case for the other Land Claim
organizations as their DevCos were created from the beginning);
Assures the selection of qualified, professional management of Devco and
operating companies who are rewarded based on DevCo's overall While minimal, there will be additional costs at least at the start-up phase,
performance or that of an operating company; including pre-incorporation and set-up costs;
Avoids costly decisions or non-decisions in terms of closing money-losing Does not guarantee improved profitability of subsidiaries
ventures (eg. Nunavik BioSciences, Cruise North, Nunacell which
combined have cost $20 million to date);
As both DevCo and the Operating Companies will be run from a purely
business point of view, opens up more possibilities in terms of Joint
Ventures with third parties;
The ability to move much faster to take advantage of business
opportunities and to resolve any inter-operating company conflicts;
Cost savings as a result of synergies amongst the various operating
companies is anticipated;
As Makivik's financial sustainability can more likely be achieved through
DevCo, Makivik Executive will be freed up to attend to the other three
strategic goals namely: promoting the Inuit way of life, promoting
learning and skills development and protecting beneficiary treaty and
non-treaty rights;
The proposed Board structure of Devco and Operating Companies is
designed to educate and mentor beneficiary directors in the functioning
and governance of a Board;
Depoliticizes the business decision-making process at the operating
company level which should lead to increased efficiencies and increased 21
profitability;
 Resolution of the Makivik Board of Directors and Next Steps
By Resolution 2017-4, the Makivik Board of Directors at their meeting held in Ivujivik, Quebec
from February 21-24, 2017 adopted and approved the recommendations of the Structural
Review Committee and thereby the creation of a new Development Corporation with the
objective of improving Makiviks business operations and its ability to take greater advantage of
new business opportunities.
The Board of Directors also created an Implementation Committee consisting of the same
membership as the Structural Review Committee who, over the next few months, will be
responsible for:
- incorporating the development corporation and making the required changes to the share
structures of Makiviks subsidiaries etc.
- developing guiding policies for the new company and the various subsidiaries;
- reviewing the selection criteria for new Board Members and making recommendations to
the Makivik Board of Directors with regard to the appointment of the Board of Directors
of the development corporation and the initial Boards of Directors of First Air and Air Inuit;
- initiating the search for a new Chief Executive Officer of the development corporation;
and
- drafting a budget for the first year of the development corporations operations.
The Implementation Committee is to report back to the Makivik Board of Directors with regard
to the above tasks by no later than June 15, 2017. 22